The world of business is highly digital in most aspects, including finances. Gone are the days when small business owners exclusively made cash transactions. So, you might wonder how the IRS tracks online business transactions. That’s where the 1099-K form comes in.
Let’s dive into this blog and understand the recent changes and 1099-K reporting requirements.
Overview
In November 2023, the IRS announced a delay in the new Form 1099-K reporting threshold for third-party platform payments. For the tax year 2024, the threshold will be $5000. For the 2025 TY, the threshold will drop to $600.
Given the complexity of the new provision, the large number of individual taxpayers affected, and the need for stakeholders to have certainty with enough lead time, the IRS has set a $5,000 threshold for tax year 2024. Stakeholders must comply with this transition as part of the phase-in to implement the $600 reporting threshold enacted under the American Rescue Plan (ARP).
Key Points about Form 1099-K
Like other forms in the 1099 series, the form has an important purpose: reporting credit card and third-party transactions.
- What is Form 1099-K?
Form 1099-K, Payment Card and Third-Party Network Transactions, is an IRS form used to report credit/debit card transactions and third-party network payments. - Who is required to file 1099-K?
Usually, Payment Settlement Entities (PSEs), Multiple PSEs, and Electronic Payment Facilitators (EPFs) are required to file Form 1099-K with the IRS. - Which types of payments are not included in 1099-K?
Any personal payments (sent from family or friends) are not reported on Form 1099-K. These payments are not considered for goods or services. - What is 1099-K due date?
You are required to distribute the recipient copy by January 31
The due date to file 1099-K electronically is March 31, and the due date to file on paper is February 28.
1099-K Reporting Requirements
The 1099-K reporting requirements are designed to ensure that payment settlement entities (PSEs) like PayPal, Venmo, and other online marketplaces must file Form 1099-K if payments exceed the threshold value.
Thresholds for 1099-K:
- 2024 TY: $5,000 in aggregate payments
- 2025 TY: The threshold will reduce to $600
Information Required:
Before you file 1099-K, make sure you have collected the following information correctly: name, address, and taxpayer identification number (TIN) of each participating payee, along with the gross amount of reportable payment transactions.
Types of Transactions:
Reportable transactions include payments made via credit, debit, or stored-value cards, and third-party network transactions for goods and services.
1099-K: Box by Box Filing
1099-K Form comprises of 8 boxes. Each box requires specific information that needs to be filled very carefully.
Box 1a
Gross Payment Amount: Total amount of reportable payment transactions for the year.
Box 1b
Card Not Present Transactions: It is a subset of Box 1a, showing transactions where the card was not present.
Box 2
Merchant Category Code (MCC): Code that classifies the type of business.
Box 3
Number of Payment Transactions: Total number of payment transactions processed.
Box 4
Federal Income Tax Withheld: Any federal income tax withheld from the payments.
Box 5a-5l
Monthly Gross Payments: Gross payment amounts for each month of the year.
Box 6
State: State abbreviation for the state related to the payments.
Box 7
State Identification Number: State identification number for the payee.
Box 8
State Income Tax Withheld: Any state income tax withheld from the payments.
Final Thoughts
Under recent threshold changes, the IRS has set a $5,000 reporting threshold for Form 1099-K for the 2024 tax year, with plans to reduce it to $600 for the 2025 tax year. Staying compliant with these changes is crucial for avoiding penalties. Utilizing tools like Tax1099 can simplify the process and ensure accuracy.
How can Tax1099 help businesses comply with 1099-K reporting requirements?
Tax1099 offers several features to help businesses comply with 1099-K reporting requirements:
- Bulk Upload: You can upload multiple 1099-K forms at once using Excel or CSV templates, making it easier to manage large volumes of data.
- Automated Filing: Tax1099 automates the filing process, reducing the risk of errors and ensuring timely submissions. This includes both federal and state filings.
- Integration: The platform integrates with various accounting software, streamlining the data transfer process and ensuring accuracy.
- TIN Matching: Tax1099 provides a bulk TIN Matching feature that helps businesses verify taxpayer identification numbers against the IRS database.
If you have any questions or need further assistance, don’t hesitate to reach out at [email protected]
