The IRS has announced a reprieve for individuals who have received more than $600 through payment apps like Venmo, PayPal, or Cash App this year. The agency revealed that it is once again postponing the enforcement of a 2021 law mandating payment platforms to issue tax forms, known as 1099-Ks, to recipients with more than $600 in earnings during the current tax year.
This marks the second consecutive year that the IRS has deferred the implementation of the new regulation. Following last year’s decision to push back the law until 2023, the agency has now extended the delay by an additional year. The rationale behind this extension is to “reduce taxpayer confusion” based on feedback from taxpayers, tax professionals, and payment processors.
Without this delay, an estimated 44 million 1099-K forms would have been dispatched to millions of taxpayers for the current tax year, even if they did not owe taxes on the payments and were not expecting such documentation, according to the IRS. Instead, the IRS will stick to an existing threshold—more than 200 transactions exceeding $20,000 in income—for sending 1099-Ks in early 2024 to complete the current tax year’s returns.
This rule change is expected to impact a significant number of taxpayers, given that it would have affected anyone receiving more than $600 through a payment app this year. However, despite this alteration, it is emphasized that all taxable income must still be reported to the IRS.
2024 Cash App Reporting Threshold Raised to $5,000
In a notable revision to the law, the IRS announced that starting in tax year 2024, it will gradually transition to the new rule by increasing the reporting threshold from $600 to $5,000. This implies that individuals receiving more than $5,000 in payments via platforms like PayPal in 2024 would receive the 1099-K tax form in early 2025 to complete their 2024 tax returns. For the 2025 tax year, the threshold would revert to $600 unless further changes are made.
The IRS’s decision to delay the implementation of the new Form 1099-K reporting requirements has been welcomed by Erin Collins, the National Taxpayer Advocate, who emphasized the need for certainty and clarity for taxpayers and tax professionals. Some Republican lawmakers view the second consecutive delay as an indication that the $600 rule is confusing and “unworkable,” suggesting a reevaluation of the legislation.
When in Doubt, Consult a Professional
Whether you are using a cash app for your business or to pay back your friend from picking up your lunch, these new reporting thresholds affect everyone and will likely cause some confusion. As a taxpayer, and potential business owner, the onus is on you to correctly report your taxable income. Make sure you are keeping up with the latest IRS announcements, or find a strong partner who does.