January 4, 2023
IRS delays $600 reporting threshold for third-party settlement organizations until 2023
In Notice 2023-10, the IRS delayed the reduction to a $600 de minimis threshold for reporting transactions by third-party settlement organizations (TPSOs) on Form 1099-K, Payment Card and Third Party Network Transactions, until 2023.
The IRS said calendar-year 2022 will be treated as a "transition period," so the IRS will not enforce the new de minimis threshold for Form 1099-K reporting by TPSOs and their electronic payment facilitators (EPFs) (referred to collectively as "payors"). The IRS also released FS-2022-41, updating frequently asked questions about Form 1099-K to include this delay.
Suspending lower threshold for 2022
The American Rescue Plan Act of 2021 lowered the IRC Section 6050W threshold for reporting payments in settlement of third-party network transactions from payments exceeding $20,000 from more than 200 transactions to payments exceeding $600, beginning with calendar-year 2022. Under Notice 2023-10, payors will not be required, for calendar-year 2022, to report payments in settlement of third-party network transactions to a payee unless the gross aggregate payments exceed $20,000 and the number of transactions with that payee exceeds 200 (as required in previous years). For calendar-year 2023 and thereafter, reporting will be required if payments to a participating payee exceed $600.
EY observes: Notice 2023-10 gives relief to payors that would have been required to file many more Forms 1099-K for 2022 than they did previously, as well as to the taxpayers who would have received those forms. While several legislative proposals in late 2022 would have increased the $600 statutory de minimis threshold, there was apparently not enough consensus on what the new threshold should be to amend the statute.
Note: Payors that performed backup withholding during calendar-year 2022 on payments that would have been reportable absent the Notice must file a Form 1099-K with the IRS and furnish a copy to the payee if total payments to and withholding from the payee exceeded $600 in 2022.
EY observes: While Notice 2023-10 provides welcome relief for 2022 reporting, TPSOs and EPFs must remain vigilant in collecting taxpayer identification numbers (TINs) from all payees in 2023. Under the current statute, a payor that does not have a payee's TIN must withhold from payments made in settlement of third-party network transactions without regard to any exception for de minimis payments (a de minimis threshold on third-party network transactions for backup withholding purposes was proposed in early 2022 in the Build Back Better Act but was not enacted into law). As payors are generally liable for any tax they should have withheld but did not, they should impose backup withholding (at the current rate of 24%) on every payment made in settlement of a third-party network transaction if they do not have the payee's TIN.
Published by NTD’s Tax Technical Knowledge Services group; Andrea Ben-Yosef, legal editor