Starting in 2024, third-party settlement organizations (TPSOs) such as Venmo, Etsy, and CashApp were required to issue 1099-K forms to users with more than $5,000 in business transactions. In 2025, the TPSO’s reporting threshold will decrease to $2,500, and by 2026, it will drop further to $600.
The gradual phase-in of the new 1099-K reporting requirements originates from a 2021 law aimed at expanding the scope of who receives the form, initially setting the threshold at $600. The $600 threshold marked a significant decrease from the prior rule, which required Form 1099-K only for payments exceeding $20,000 and involving more than 200 transactions. However, significant backlash from taxpayers and representatives led the IRS to delay the rule, finding middle ground, by establishing a higher temporary limit of $5,000 for the 2024 tax year, with plans to lower the threshold in stages as outlined earlier.
The lower reporting thresholds will result in more taxpayers receiving Form 1099-Ks. Taxpayers who receive these forms should ensure proper reporting of the amounts to stay compliant with IRS requirements. Failure to do so may result in an IRS CP2000 notice, which identifies discrepancies between the income reported by third parties and what is included on the taxpayer’s return. Failure to address this can lead to penalties. As always, we recommend collaboration with your WG tax advisor. If you have questions or require more information, please don’t hesitate to reach out.
