The IRS has issued new guidance (Notice 2024-85) formalizing the $5,000 threshold for reporting 2024 payments made through third-party payment networks on Form 1099-K, and has set a new $2,500 threshold for payments made in 2025.
The reporting threshold under Section 6050W had been set to be reduced to $600 for payments made in 2025 under a long-delayed change that was originally scheduled to take effect in 2022. The IRS has repeatedly offered transition relief, though it warned taxpayers that it plans to allow the $600 threshold to take effect in 2026.
The $2,500 threshold for 2025 may offer relief to some taxpayers who would face more reporting obligations under a $600 threshold. The payment reporting requirements under Section 6050W can affect a wide variety of platforms and services, including auction houses, consignment sellers and other applications and platforms that connect customers to sellers of goods or services.
There is no de minimis exception for payment card reporting under Section 6050W, and third-party settlement networks may still be required to report at the $600 threshold for 2024 if backup withholding is required. Legislation affecting the thresholds remains possible. More details on the relief are provided below.
Reporting requirements
Section 6050W generally requires payment settlement entities to report payment card transactions and third-party payment network transactions to sellers on Form 1099-K. There is no minimum threshold for payment card reporting, but third-party payment network transactions previously only needed to be reported for payees with more than 200 transactions and $20,000 in aggregated payments.
The American Rescue Plan Act of 2021 repealed this threshold and provided that reporting would be required for aggregate payments exceeding $600, regardless of the number of transactions. The change was originally scheduled to be effective for payments made in 2022, but Notice 2023-10 and Notice 2023-74 preserved the original threshold for payments made in 2022 and 2023. The IRS then announced in a news release (IR-2023-221) that it planned to set a $5,000 transitional threshold for payments in 2024, which Notice 2024-85 now makes official. It also sets a final transitional threshold of $2,500 for payment in 2025.
Under the relief, the IRS will not assert penalties under Sections 6721 or 6722 for failing to file a Form 1099-K or furnish a statement to a payee unless the payments exceed $5,000 for payments made in 2024 and $2,500 for payments made in 2025. However, payment settlement networks that have performed backup withholding under Section 3406(a) must still file both a Form 945 and a Form 1099-K if the total reportable payments to the payee exceed $600 for the calendar year.
Grant Thornton Insight
Backup withholding is generally required if a payee does not furnish a taxpayer identification number (TIN) to the payment settlement entity or if the IRS has indicated there is a TIN mismatch. This backup withholding is required without regard to the de minimis reporting thresholds, and the payment settlement entity can be held liable for any failures. Taxpayers should apply backup withholding on any payees who have not provided a TIN, and perform withholding as may be required for incorrect TINs that are not remedied through the IRS’s B Notice process for such TIN discrepancies.
If payments exceed the respective $5,000 or $2,500 thresholds in 2024 or 2025, the reporting must be performed regardless of the number of transactions. This is the first time that reporting will be required on payees with fewer than 200 transactions.
Grant Thornton Insight
Legislation remains possible in this area. There is significant bipartisan interest in permanently raising the $600 statutory threshold, but there is less agreement on where to set it. There are several versions of legislation with various remedies, including bills that would restore the 200 transaction/$20,000 threshold, set a 100 transaction/$10,000 threshold, or create a permanent $5,000 threshold. The bipartisan interest has yet to translate into enacted law despite years of effort, and taxpayers should be preparing to perform reporting based on the current thresholds unless legislation is enacted.
Next steps
The determination of whether Section 6050W or another reporting regime applies (such as Form 1099-NEC of Form 1099-MISC) is often complex and can affect both the threshold at which reporting is required and who is required to report. Taxpayers may need to evaluate the relationships and contractual agreements between parties using their platforms, the specific payment chains for transactions, and any arrangements with payment processors.
All payment settlement entities covered by Section 6050W should be preparing to report 2024 payments using the $5,000 threshold, and should consider communicating the current reporting thresholds to users. The deadlines for reporting 2024 payments are quickly approaching. Taxpayers must furnish the Form 1099-K or an equivalent statement to payees by Jan. 31 and must generally file the form electronically with the IRS by March 31.
Payment settlement entities should also be preparing to collect the necessary information and perform reporting using a $2,500 threshold for 2024 payments. Taxpayers should also be aware of potential backup withholding obligations that apply without regard to the reporting thresholds for a missing or incorrect TIN.
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