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Finance Forward Blog

IRS Relaxes Reporting Requirements for Venmo and Paypal

The IRS recently announced it is delaying implementation of the lowered 1099-K reporting threshold that was set to take effect for tax year 2023. The threshold will remain at either $20,000 or over 200 transactions for another year.

In 2021, the American Rescue Plan Act lowered the 1099-K threshold to $600 in an effort to increase tax compliance. However, after backlash that this would inundate taxpayers and the IRS with millions of unnecessary forms, the IRS initially decided to delay enacting the lower threshold until 2023.

Now, the IRS has postponed the lowered threshold again after determining more time is needed to effectively roll out the change. In the newly released Notice 2023-74, the IRS states the $600 threshold will not apply for 2023. Instead, they plan to phase-in a $5,000 threshold in tax year 2024.

What Does This Mean for Taxpayers and Small Businesses?

The updated IRS guidance comes as welcome news for taxpayers and small business owners who use third-party payment services like PayPal, Stripe, and Square. An estimated 40 million new 1099-k filing requirements would be expected under the tightened thresholds.

With the delay until at least 2024, you can continue conducting business as usual without worrying about a flood of unnecessary tax forms next year. The old 1099-K rules still apply for 2023: you will only receive a form if you exceed $20,000 in gross payments and 200 transactions with a third-party processor.

However, the IRS isn't eliminating the requirement altogether. They plan to begin phasing it in at $5,000 in 2024. We advise clients to start preparing now by tracking all business income received via third-party apps and services. This will make reporting easier when the lower threshold kicks in.

As always, reach out to our accounting team if you need help managing 1099 reporting requirements or have any other tax-related questions! We will keep you updated on any further IRS guidance on Form 1099-K reporting.