How Do I Handle the Changing Rules for Form 1099-K for Clients?
The number one question received during 2021 Fall Tax School was “how do I handle the changing rules for Form 1099-K for clients?” Below I’ve outlined some background information and…
Last week, the IRS issued News Release 2024-299, providing certain relief for 2024 Form 1099-K reporting. As part of the release, the IRS reiterated that taxpayers must be issued a Form 1099-K for any number of transactions totaling over $5,000 in 2024. However, the IRS went on to provide the filing thresholds for 2025 is any number of transactions totaling over $2,500. For 2026 and future years, the filing threshold is any number of transactions totaling over $600. For the 2024 calendar year, the IRS announced that failure to file penalties and failure to make deposit of taxes penalties would not be assessed against Form 1099-K issuers who failed to withhold and pay backup withholding during the year. However, these penalties will be assessed for such failures in calendar years 2025 and after. The news release reads as follows:
IR-2024-299, Nov. 26, 2024
WASHINGTON — The Internal Revenue Service today issued Notice 2024-85 providing transition relief for third-party settlement organizations (TPSOs), also known as payment apps and online marketplaces, regarding transactions during calendar years 2024 and 2025.
Under the guidance issued today, TPSOs will be required to report transactions when the amount of total payments for those transactions is more than $5,000 in 2024; more than $2,500 in 2025; and more than $600 in calendar year 2026 and after.
Notice 2024-85 also announces for calendar year 2024, that the IRS will not assert penalties under section 6651 or 6656 for a TPSO’s failure to withhold and pay backup withholding tax during the calendar year.
TPSOs that have performed backup withholding for a payee during calendar year 2024 must file a Form 945 and a Form 1099-K with the IRS and furnish a copy to the payee.
For calendar year 2025 and after, the IRS will assert penalties under section 6651 or 6656 for a TPSO’s failure to withhold and pay backup withholding tax.
Summary from University of Illinois Tax School
While the IRS announced the over $5,000 threshold back in November 2023, this news release further delays the original over $600 threshold from 2022 to 2026. However, with the confirmation of the $5,000 threshold for 2024, practitioners may see more Form 1099-K forms issued compared to the prior year, where the threshold was over 200 transactions totaling over $20,000 in a calendar year. With the 2025 “transitionary” threshold of over $2,500, practitioners may not see as many Form 1099-Ks for tax year 2025 as originally anticipated. As the over $600 Form 1099-K filing threshold dates have changed numerous times, practitioners should be mindful that future thresholds may change. Subscribe to the University of Illinois Tax School blog for updates and to stay current on this important issue.
Disclaimer: The information referenced in Tax School’s blog is accurate at the date of publication. You may contact taxschool@illinois.edu if you have more up-to-date, supported information and we will create an addendum.
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