Wednesday December 28, 2022 – The Internal Revenue Service (IRS) recently announced that it is delaying the implementation of 1099-K reporting requirements until January 2023. This delay affects businesses and individuals who receive payments from financial organizations and other third parties through electronic payment channels such as PayPal, Venmo, Square, Apple Pay or Google Wallet.
The delay provides financial organizations and their customers with a valuable reprieve from the compliance and administrative costs associated with the new requirements. More importantly, the IRS doesn’t have the capabilities to process the huge increase in information returns. In 2020 the IRS processed 3.2 billion information returns – 30 million of which went unprocessed. In 2021 the IRS processed 4.7 billion information returns. It isn’t clear if the IRS left any unprocessed.
For both businesses and individuals receiving payments through these online platforms, this announcement offers interim relief from an onerous process for filing 1099-K forms for income earned through digital payment methods to report to the IRS. The original deadline was in 2021, but now has been extended for two years. There have been Congress members, on both sides of the aisle, proposing legislation to change the parameters. The current law triggers a 1099-K after just $600 of activity. With that low trigger, it is clear the number of returns were set to explode.
The extension also provides additional time for employers to develop additional safeguards or systems that protect taxpayers from being charged taxes on amounts that should be exempt from taxation, as commercial activity tax laws vary between different states. It is important to bear in mind that while this delay may provide comfort to some businesses, they are still required to comply with all applicable federal tax laws when it comes to reporting any income received through digital payment channels starting January 2023.
Attorney Steven A. Leahy looks at this new development on Today’s Tax Talk