On Nov. 26, 2024, the IRS issued Notice 2024-85, delaying the implementation of the $600 Form 1099-K reporting threshold for third-party settlement organizations (TPSOs) like Venmo, Uber, eBay, and Etsy. This means these companies won’t be required to report income over $600 to the IRS until 2026. For the next two years, the reporting thresholds will be higher:

• 2024: $5,000
• 2025: $2,500 
• 2026: $600 and after

The IRS has confirmed that the 1099-K reporting threshold for 2024 will remain set at $5,000, regardless of the total number of transactions.

Updates to 1099-K Reporting Threshold and Implementation Delays

The American Rescue Plan Act of 2021 (ARPA) significantly changed the reporting requirements for third-party settlement organizations (TPSOs). Before ARPA, TPSOs were required to issue Form 1099-K only if a payee’s total transactions exceeded $20,000 and included more than 200 transactions annually. ARPA lowered this threshold to $600 with no minimum transaction count, initially set to take effect for the 2022 calendar year.

However, the IRS has delayed the implementation of this change three times, providing the following relief:

• Calendar Year 2022: Under Notice 2023-10, the IRS treated 2022 as a transition period, allowing TPSOs to continue using the previous $20,000/200-transaction threshold.
• Calendar Year 2023: Under Notice 2023-74, the IRS extended the transition period, maintaining the $20,000/200-transaction threshold for another year. Additionally, the IRS announced plans to introduce a $5,000 threshold for 2024 as a gradual step toward the $600 reporting threshold.

These delays aim to give TPSOs and taxpayers more time to adjust to the stricter reporting requirements and minimize confusion and administrative burden.

IRS Delays 1099-K Reporting Threshold for 2024 and 2025

The IRS has announced further delays in implementing the stricter 1099-K reporting threshold, offering a phased approach over the next two years under Notice 2024-85. Here’s what businesses and payees need to know:

• Calendar Year 2024: TPSOs must report payments for payees with total payments exceeding $5,000, regardless of the number of transactions.  
• Calendar Year 2025: The reporting threshold drops to $2,500, again with no minimum transaction count. The IRS has stated that 2025 will serve as the final transition period.   

Backlash of the $600 threshold

The IRS has announced a reprieve for Third-Party Settlement Organizations (TPSOs), waiving penalties for backup withholding tax non-compliance in 2024. The controversial $600 Form 1099-K reporting threshold remains contentious, with bipartisan acknowledgment that reform is needed.

Republicans and Democrats differ on the ideal threshold, with GOP proposals around $20,000 and Democratic suggestions closer to $5,000. While a legislative solution seems unlikely during the current congressional session, future tax reform bills may address the issue. The potential for change remains fluid, underscoring the importance of staying informed about ongoing developments.

For now, TPSOs can breathe easier with the IRS’s penalty moratorium, but the broader debate about reporting thresholds continues to simmer. If you have any questions, don’t hesitate to contact Huckabee CPA for a free consultation.