In a significant development for tax practitioners and their small business clients, the IRS has established new transitional thresholds for Form 1099-K reporting through Notice 2024-85. This guidance outlines important changes that will affect third-party settlement organizations (TPSOs) and their reporting obligations over the next two years.
New Reporting Thresholds
For the 2024 tax year, TPSOs will be required to issue Form 1099-K to payees with aggregate payment transactions exceeding $5,000. This threshold will decrease to $2,500 in 2025, marking a graduated approach toward the eventual $600 threshold established by the American Rescue Plan Act (ARPA).
Key Points for Tax Practitioners
Tax professionals should note several important aspects of this guidance:
- The $5,000 threshold applies to aggregate payments throughout 2024, regardless of the number of transactions.
- TPSOs, including platforms like eBay, Uber, and Venmo, must comply with these new reporting requirements for their users.
- For 2024, the IRS has granted penalty relief related to backup withholding requirements under sections 6651 and 6656. However, this relief will expire in 2025.
Client Advisory Considerations
Tax practitioners should prepare their small business clients for increased information reporting in the coming years. Clients who use payment apps or online marketplaces should be advised to:
- Maintain detailed records of all transactions processed through TPSOs
- Separate personal and business transactions on payment platforms
- Review their aggregate transaction volumes to anticipate whether they will exceed the reporting thresholds
Looking Ahead
While the original ARPA legislation set a $600 threshold beginning in 2022, the IRS has opted for a phased implementation through multiple delays and transitional thresholds. Tax professionals should stay informed about potential further developments and prepare their practices for increased Form 1099-K volume in coming years, especially small business clients reporting on schedule C.
The scaled implementation represents a significant shift from previous years' reporting requirements and will likely increase the documentation burden for many small business clients. Practitioners should consider developing standardized procedures for handling the anticipated increase in 1099-K forms and related client inquiries.
For tax practices, this transitional period provides an opportunity to proactively communicate with clients about these changes and assist them in implementing appropriate record-keeping systems before the lower thresholds take effect.
Christine Gervais is a licensed CPA, using her skills to help businesses grow and achieve their fullest potential. Christine has a Master’s degree in accounting from Southern New Hampshire University in addition to holding her CPA license for over a decade. Notably, Christine is a nationally recognized speaker providing education to other CPAs on how to best serve clients as well as instruction on a wide variety of topics for business owners on how to maximize success. Christine prides herself on the value she can bring to clients with her extensive tax knowledge and provides strategic, forward-thinking financial strategies to help clients grow. When not behind her desk, you can find Christine spending quality time with her daughter and stepson or tending to the family’s excessively loved farm animals.
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