The IRS recently announced important changes to the reporting requirements for third-party settlement organizations (TPSOs) that handle payment card and third-party network transactions.
PayPal and Venmo are examples of TPSOs. These changes, impacting Form 1099-K, “Payment Card and Third Party Network Transactions,” are designed to ease the transition to stricter rules introduced by the American Rescue Plan Act of 2021.
Don’t let 1099-K reporting requirements catch you off guard. Contact Frost Law today at (410) 497-5947 or fill out our contact form to connect with tax attorneys for guidance on these changes.
Gradual Implementation: Reporting Thresholds and Timelines
To help TPSOs and taxpayers adapt, the IRS has established a phased implementation plan with adjusted reporting thresholds:
- 2024: TPSOs are required to report transactions only if total payments to a payee exceed $5,000, regardless of the number of individual transactions.
- 2025: The reporting threshold decreases to $2,500.
- 2026: The final threshold of $600 takes effect.
Penalty Relief and Backup Withholding
During the 2024 transition period, the IRS will provide penalty relief for noncompliance with backup withholding obligations. However, it’s important to note that penalties for failing to report or furnish accurate Forms 1099-K will be in effect starting in 2025.
Ensuring Compliance with 1099-K Requirements
These revised timelines and thresholds provide businesses and taxpayers with a crucial window to adjust to the new reporting guidelines. Full enforcement of the Form 1099-K reporting thresholds will begin with transactions occurring in 2026. Understanding these changes is essential for maintaining compliance and avoiding potential penalties.
Is your business prepared for the upcoming 1099-K reporting changes? To ensure compliance, call us at (410) 497-5947 or fill out our contact form to schedule a consultation with a Frost Law tax attorney.
