The American Rescue Plan Act of 2021 provided, among other things, that the minimum threshold to issue a 1099-K be lowered from $20,000 to $600 without a phase-in schedule. In December 2022, the IRS delayed this precipitous drop and declared 2023 the transition year.
Now, 2024 is the first year of the threshold phase-in. For Tax Year 2023, the minimum threshold of $20,000 and 200 recorded transactions remains.
The lobbying efforts and pushback from tax professionals, consumer advocates, and third-party settlement platforms were instrumental in delaying the 1099-K rules through 2023.
The tax professionals at Anderson Bradshaw Tax Consulting want the recipients of 1099-Ks, and the businesses issuing them, to understand the phase-in of the income threshold in place beginning in Tax Year 2024.
No Compromise
When 2023 was declared the transition year, the intent was to find a compromise between the $20,000 prior minimum and the new $600 threshold. Since no compromise was reached in time for the 2023 tax filing, the $20,000 threshold remains.
The $600 target will not be reached in one year. Rather, there will be a phase-in, and the minimum in place for 2024 is $5,000.
The Delay
The abrupt decline in the threshold to $600 would have confused taxpayers and burdened the businesses issuing the forms. However, the most significant burden would have been on the IRS to process and enforce the new 1099-K rules in 2023.
This threshold requirement would have necessitated changes in Form 1040, Schedule C, and other business tax forms. There was insufficient time to finalize and effect these changes for the 2023 tax year.
Form 1099-K
The IRS has clarified the transaction types where a 1099-K is required. These reportable transaction types are:
- freelance platforms,
- online marketplaces,
- resale sites,
- auction sites, and
- crowdfunding
The “online marketplaces” category includes transactions on social media, craft, and other online sales platforms.
The areas become gray when third-party settlement platforms (like PayPal and Shopify) include friends-and-family transactions, ridesharing cost splits, or business expense reimbursements. These transactions are not taxable events but will now be reported on a 1099-K because of the lowered threshold.
To offset a non-reportable transaction reported on a 1099-K, there must be a corresponding offset on Schedule 1 of Form 1040.
This offset must bring a non-reportable transaction to $0 to avoid tax liability.
Reportable Income
Let’s be clear—the $20,000 minimum threshold pertains only to issuing a 1099-K. The threshold does not absolve taxpayers’ liability for taxes owed on income under $20,000.
The threshold relates to paper, not the tax liability.
Tax Year 2024 will be the first phase-in to the target $600 threshold. It is unclear how many phases will be until the target is reached. However, it is known that the first phase will be the $5,000 threshold for Tax Year 2024.
All taxpayers will receive a 1099-K if income from reportable transactions totals $5,000 or above.
The rule remains that all income must be reported whether a 1099-K, 1099-MISC, or 1099-NEC is issued.
Hopefully, materials and publications will be forthcoming before the end of the 2024 tax year with detailed instructions on preparing the forms and an explanation of the phase-in schedule tiers.
If you need legal and professional counsel regarding the rules affecting 1099-Ks that is in order, please contact Anderson Bradshaw Tax Consulting today. Our tax relief consultants are ready to answer any of your questions.
With over 30 years of experience, we have seen every tax issue and have learned the best ways to handle any situation quickly and efficiently.
For further information or to schedule a consultation, please contact Anderson Bradshaw Tax Consultants at 877-550-3911 or visit www.AndersonBradshawTax.com to learn more.
