There has been considerable discussion about the $600 reporting threshold, and confusion has resulted from legislative changes and IRS delays. As we begin the new year, here is the latest information I’ve found to pass along to you all.
Reporting for Third-Party Payment Networks
The reporting requirements for Third-Party Settlement Organizations (TPSOs), such as PayPal, Venmo, and Stripe, are separate and distinct from the rules governing Forms 1099-NEC and 1099-MISC. These TPSOs are required to report transactions for goods and services using Form 1099-K. The legal foundation for this reporting is IRC Section 6050W.
The IRS announced a phased-in approach to the lower threshold. For the 2024 tax year, the transitional reporting threshold was $5,000, with no minimum transaction count. For the 2025 tax year, the threshold is set to be $2,500, also with no minimum transaction count.
The $600 threshold is planned to take effect for the 2026 tax year, completing the phase-in process. Form 1099-K only reports payments received for goods and services transactions. Personal transfers, such as splitting a dinner bill, are not considered reportable business transactions, regardless of the amount.
Considerations for Business Payments
The traditional $600 threshold applies specifically to payments made in the course of a payer’s trade or business. This rule covers various types of income that an independent contractor or vendor might receive. The most common application involves non-employee compensation, which is reported on Form 1099-NEC.
This compensation includes payments for professional services, fees, commissions, and other money paid to individuals or non-corporate entities. The threshold is not limited solely to services, however, and extends to other miscellaneous income streams reported on Form 1099-MISC. These miscellaneous payments include rents paid to a landlord, royalties exceeding $10, prizes, and awards.
Exemptions
Specific payments are exempt from the $600 reporting requirements. Exemptions include:
- Payments made to corporations, which are generally not required to receive a Form 1099 (** this corporate exclusion, however, does not apply to payments made for medical and health care services or payments made to attorneys for legal services, which remain reportable regardless of the recipient’s corporate status)
- Another exclusion covers payments made for merchandise, inventory, or other tangible goods
- If a business pays a vendor $5,000 for products to be resold, no Form 1099 is required because the payment is for goods, not services. The reporting requirement is narrowly focused on payments for services and specific miscellaneous income items
- Payments made for purely personal purposes are also exempt from this business reporting rule
- Compensation paid to an employee is reported on Form W-2 and is exempt from the 1099 reporting requirements
Form 1099-K
Form 1099-K is a report of payments you received for goods or services during the year from:
- Credit, debit or stored value cards such as gift cards (payment cards)
- Payment apps or online marketplaces, also called third-party settlement organizations or TPSOs
These organizations are required to fill out Form 1099-K and send copies to the IRS and to you. Use Form 1099-K with other records to help you figure out and report your taxable income when you file your tax return. Did you get a Form 1099-K? Find what to do with it on IRS.gov/1099khelp.
The IRS set the reporting threshold at $5,000 for 2024, $2,500 in 2025, and $600 for 2026 and thereafter. Notice 2024-85 For Forms 1099-K for calendar years beginning after December 31, 2025, a TPSO is required to report payments in settlement of third-party network transactions with respect to any participating payee that exceed a minimum threshold of $600 in aggregate payments, regardless of the number of such transactions.
The IRS will not regard calendar year 2024 or 2025 as a transition period with respect to the requirements of section 6050W that were not modified by section 9674(a) of the ARP, such as provisions relating to payment card transactions.
Image by Gerd Altmann from Pixabay
Keeping Up
Reporting income involves continued learning and keeping detailed records. Keeping up throughout the year begins afresh for the new year!
We’re living in fast times of ongoing change. In preparation for the upcoming tax season, I’ll be sure to keep you posted about what I learn, so you can confer with those who assist you in preparing for tax season.
Contact me anytime to learn more about how I work with individuals, business owners, and employees via Email or online @ The Living Planner. Book a Time with Lynn for a complimentary 30-minute Zoom with me. If you’re one who likes to pre-plan, my book is a resource for you. The Living Planner What to Prepare Now While You Are Living © Check it out HERE.
Quote of the week: “Start where you are. Use what you have. Do what you can.” – Arthur Ashe
Let’s make it a great year! Lynn
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