- January 17, 2024
The Internal Revenue Service made a significant change in the legislation. It has stated that it will raise the tax reporting threshold from $600 to $5,000 beginning in the tax year 2024. Therefore, those who earn more than five thousand dollars in payments through online payment portals in 2024 will get their tax Form 1099-K in the tax year 2025.
Till the IRS modifies, this threshold will drop to $600 for the tax year 2025. Thus, taxpayers and tax professionals will benefit from this decision of the IRS to postpone the implementation of the tax Form 1099-K. The IRS has also announced that it demands reporting of transactions worth $5,000 and more for the upcoming tax year.
What is Form 1099-K?
This IRS tax Form will detail the transactions that you have made digitally on online apps and marketplaces to sell goods and services in the course of doing business. These transactions are taxable, and while performing transactions on certain marketplaces like Amazon, eBay, etc, payment gateways will receive Form 1099-K. The payment threshold was $20,000. IRS then reported that by the tax year 2024, this payment threshold would be $600. However, since it received feedback from tax professionals and taxpayers, the IRS has delayed the new $600 Form 1009-K reporting threshold for third-party organizations for the tax year 2023 and is planning a threshold of $5000 for 2023 in its new law.
Reporting rule for Form 1099-K $600 Threshold
The IRS has laid certain guidelines with respect to the $600 reporting rules. These guidelines are as follows.
- The taxpayers will get Form 1099-K to record their income if they were paid more than $600 for goods and services through third-party payment networks.
- With the introduction of the new threshold for filing the tax form, the IRS expects that more people who work for small enterprises, work gigs, and side gigs will be filing their income returns.
- There are also concerns that a large number of taxpayers will soon be receiving their 1099-K forms and would thus require more time to get versed with the new regulations.
Tax Reporting Threshold
IRS expects the payment apps and online marketplaces to file their 1099-K Forms for their personal and business accounts for the tax year. They have to file this tax form and their returns if they get over $20,000 in payments from over 200 transactions of both products and services. The IRS has yet to make any changes to what counts as income and how the tax calculations are being made. The reporting requirement for these third-party organizations was, however, fixed at $600. There is a delay in implementing this tax change for the year 2023, which will also cover the tax returns for early 2024. Apart from selling goods and services online, those who earn more than $600 for renting their property should also report their income to the IRS.
Taxes for personal payments from family and friends
Money that we receive from family members as gifts from friends as gifts, or for repayment of personal expenses should be kept from Form 1099-K. The IRS doesn’t consider this income as taxable money. Costs of sharing the fare of a car ride or meal, receiving money on birthdays and anniversaries, or getting paid for a room rent or a household bill by a friend or family member should be kept from the tax returns. But IRS recommends taxpayers report these payments as non-business transactions in the payment apps as much as possible.
For the year 2023, payment apps and online marketplaces will send out Form 1099-K to taxpayers who receive $20,000 and have performed over 200 transactions. For the tax year 2024, the IRS plans for a threshold of $5000 to phase in the tax reporting requirements.
