Prepared by Arturo Meza, Foreign Associate at Klug Counsel
Under guidance issued December 23, 2022, the IRS announced a delay in reporting thresholds through Forms 1099-K for merchant-acquiring entities and third-party settlement organizations set to take effect for the 2022 tax filing season. According to Acting Commissioner O’Donnell, the measure taken by the IRS was “based on a series of concerns regarding the timeline of implementation of these changes under the American Rescue Plan”1.
What companies are impacted?
A merchant acquiring entity is a bank or other organization that has the contractual obligation to make a payment to a merchant or other business in settlement of payment card transactions. Third-party settlement organizations include entities such as eBay, Amazon, Uber, and Airbnb, and some cryptocurrency processors like BitPay and CoinBase before 20202.
Why is this relevant to your filing obligations in the next tax season?
Under the American Rescue Plan, beginning January 1, 2023, these entities were required to report to the IRS the aggregate amount of payments to users that exceed $600 in a calendar year through Form 1099-K, Merchant Card, and Third-Party Payments3. This new rule changed the previous threshold of more than 200 transactions per year exceeding an aggregate amount of $20,000.
For those reasons, if you received payments of more than $600 during 2022 and on through some popular payment apps like Venmo, Zelle, Paypal, or any other similar organization, companies should have issued a Form 1099-K to you. This reporting is now delayed for tax years starting after December 31, 2022.
IRS decided to delay the enforcement and administration of the new measure
As explained above, the IRS issued Notice 2023-104 on December 23, 2022, which delayed the enforcement and administration of the new rule. As stated in the Notice, “[c]alendar year 2022 will be regarded as a transition period [for the implementation of the new rule].” However, the IRS emphatically noted that the existing 1099-K reporting threshold of $20,000 in payments from over 200 transactions will remain in effect.
For calendar years beginning after December 31, 2022, the third-party payment organizations are required to report payments in settlement of third-party network transactions with any participating payee that exceed a minimum threshold of $600 in aggregate payments, regardless of the number of such transactions.
Thus, if you receive more than $600 from a third-party payment settlement organization during 2023, you should expect to be issued a Form 1099-K, and the information being recorded in your IRS record.
Arturo Meza is a Mexican licensed attorney with more than 10 years of experience and extensive practice in cross-border transactions between Mexico and the United States. He is currently a Foreign Associate at Klug Counsel.
Klug Counsel represents companies, start-ups, private equity funds, family offices, and high-net-worth individuals. Through their strategic partnerships with law firms and other professional service firms in the U.S. and around the world, they are able to meet the tax and business needs of their clients in the U.S. and internationally.