IRS Provides Final Transition Period for $600 Form 1099-K Reporting Threshold

(Parker Tax Publishing December 2024)

The IRS announced that calendar years 2024 and 2025 will be regarded as the final transition period for implementation of the $600 threshold for filing Form 1099-K, Payment Card and Third Party Network Transactions. As a result, third party settlement organizations (TPSOs) will not be required to report calendar year 2024 transactions on a Form 1099-K unless the gross amount of aggregate payments to be reported exceeds $5,000, regardless of the number of transactions, and TPSOs will not be required to report calendar year 2025 transactions unless the gross amount of aggregate payments to be reported exceeds $2,500, regardless of the number of transactions. Notice 2024-85.

Background

Code Sec. 6050W requires payment settlement entities to file an information return for each calendar year with respect to payments made in settlement of certain reportable payment transactions. Payment settlement entities required to make annual information returns under Code Sec. 6050W do so by filing Form 1099-K, Payment Card and Third Party Network Transactions with the IRS. They are also required to furnish Form 1099-K to the participating payee.

Code Sec. 6050W covers two types of reportable payment transactions: (1) payment card transactions and (2) third party network transactions. Code Sec. 6050W(c)(3) states that a third party network transaction is any transaction for the provision of goods or services that is settled through a third party payment network. Under Code Sec. 6050W(b) and Reg. Sec. 1.6050W-1(c)(2), a third party settlement organization (TPSO) is the payment settlement entity that must report third party network transactions - that is, the transactions for goods or services that are settled through the TPSO's third party payment network - on Form 1099-K.

As originally enacted, Code Sec. 6050W(e) provided that a TPSO is not required to report third party network transactions with respect to a participating payee unless the gross amount that would otherwise be reported exceeds $20,000 and the number of such transactions with that participating payee exceeds 200. Section 9674(a) of the American Rescue Plan Act of 2021 (ARP) (Pub. L. 117-2) amended Code Sec. 6050W(e) to provide that, for calendar years beginning after December 31, 2021, a TPSO is required to report payments in settlement of third party network transactions with respect to any participating payee that exceed a minimum threshold of $600 in aggregate payments, regardless of the aggregate number of such transactions.

In Notice 2023-10, the IRS delayed implementation of the reporting threshold for TPSOs in Section 9674(a) of the ARP for Forms 1099-K for calendar years beginning before January 1, 2023. Notice 2023-10 also provided that the IRS would not assert penalties under Code Secs. 6721 or 6722 for TPSOs failing to file or failing to furnish Forms 1099-K unless the gross amount of aggregate payments required to be reported exceeded $20,000 and the number of transactions exceeded 200. In Notice 2023-74, the IRS further delayed implementation of the reporting threshold for TPSOs for calendar year 2023 and further provided that the IRS would not assert penalties under Code Sec. 6721 or Code Sec. 6722 for TPSOs failing to file or failing to furnish Forms 1099-K unless the gross amount of aggregate payments required to be reported exceeded $20,000 and the number of transactions exceeded 200.

Further Transition Period for 2024 and 2025

In Notice 2024-85, the IRS announced that calendar years 2024 and 2025 will be regarded as the final transition period for purposes of IRS enforcement and administration with respect to the minimum threshold for reporting by TPSOs under Code Sec. 6050W(e), as amended by the ARP.

For calendar year 2024, a TPSO is not required to report payments in settlement of third party network transactions with respect to a participating payee unless the gross amount of aggregate payments to be reported exceeds $5,000, regardless of the number of such transactions. The IRS will not assert penalties under Code Sec. 6721 or Code Sec. 6722 for a TPSO for failing to file or failing to furnish Forms 1099-K with respect to a payee unless the gross amount of aggregate payments to be reported exceeds $5,000, regardless of the number of such transactions.

For calendar year 2025, a TPSO is not required to report payments in settlement of third party network transactions with respect to a participating payee unless the gross amount of aggregate payments to be reported exceeds $2,500, regardless of the number of such transactions. The IRS will not assert penalties under Code Sec. 6721 or Code Sec. 6722 for a TPSO for failing to file or failing to furnish Forms 1099-K with respect to a payee unless the gross amount of aggregate payments to be reported exceeds $2,500, regardless of the number of such transactions.

For Forms 1099-K for calendar years beginning after December 31, 2025, a TPSO is required to report payments in settlement of third party network transactions with respect to any participating payee that exceed a minimum threshold of $600 in aggregate payments, regardless of the number of such transactions.

The IRS will not regard calendar year 2024 or 2025 as a transition period with respect to the requirements of Code Sec. 6050W that were not modified by Section 9674(a) of the ARP, such as provisions relating to payment card transactions. In addition, for calendar year 2024, the IRS will not assert penalties under Code Sec. 6651 or Code Sec. 6656 with respect to a TPSO's failure to withhold and pay backup withholding tax during the calendar year. TPSOs that have performed backup withholding under Code Sec. 3406(a) 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 Code Sec. 6651 or Code Sec. 6656 with respect to a TPSO's failure to withhold and pay backup withholding tax.

For a discussion of the Form 1099-K filing requirements, see Parker Tax ¶252,557.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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