The Internal Revenue Service (IRS) is delaying the implementation of its new $600 reporting threshold for third-party settlements, citing a lack of clarity.
According to a new press release from the IRS, due to the moratorium, third-party settlement businesses will no longer be required to report transactions exceeding the $600 threshold in 2022.
Furthermore, the IRS has set 2022 as a “transition period” for implementing the new threshold, which was enacted as part of the American Rescue Plan of 2021.
“The transition period…delays the reporting of transactions in excess of $600 to transactions that occur after calendar year 2022. The transition period is intended to ensure an orderly transition for TPSO [third party settlements organisation] tax compliance as well as individual payee income tax reporting compliance. In the case of a third-party network transaction, a participating payee is any person who accepts payment from a third-party settlement organisation for a business transaction.”
The IRS has stated that it will provide the necessary 1099 forms to taxpayers who require them when the time comes.
“The change in the law is hugely important because tax compliance is higher when amounts are subject to information reporting, such as the Form 1099-K. However, the IRS cautioned that it must be carefully managed to ensure that 1099-Ks are only issued to taxpayers who should receive them. Furthermore, it is critical that taxpayers understand what to do as a result of this reporting, and that tax preparers and software providers have the necessary information to assist taxpayers.”
The extra time, according to Acting IRS Commissioner Doug O’Donnell, will help taxpayers smoothly transition to the new system.
“To help smooth the transition and ensure clarity for taxpayers, tax professionals and industry, the IRS will delay implementation of the 1099-K changes. The extra time will help to reduce confusion during the upcoming 2023 tax filing season and give taxpayers more time to prepare for and understand the new reporting requirements.”