IRS Reporting Change Delayed Until 2023
When passed in 2021, the American Rescue Plan introduced a revision to its reporting threshold for third-party settlement organizations (TPSOs) that was set to take effect for this tax filing season. Currently, TPSOs like Paypal and Venmo are not on the hook for reporting third-party network transactions unless the reporting amount is greater than $20,000 and the number of transactions with that payee is greater than 200. The American Rescue Plan lowered that reporting threshold for TPSOs to $600–which left small business owners and their accounting teams scrambling. The provision didn’t give businesses a lot of time to prepare for these unexpected new tax rules and forms. There was fear among business owners that they’d make reporting errors that could trigger IRS audits.
The one-year delay comes as welcome news to business owners and TPSOs. TPSOs will now have to report transactions greater than $600 that happen after the 2022 calendar year. According to the IRS website, “The transition period is intended to facilitate an orderly transition for TPSO tax compliance, as well as individual payee compliance with income tax reporting. A participating payee, in the case of a third-party network transaction, is any person who accepts payment from a third-party settlement organization for a business transaction.”
Now that it’s 2023, it’s more important than ever for small businesses to stay on top of their books. When the 2023 tax filing season rolls around in a year, they’ll need to be prepared for an increase in the amount of Form 1099-Ks they will be receiving. For those unfamiliar with this particular tax form, a Form 1099-K “includes the gross amount of all payment transactions. You may receive a Form 1099-K from each payment settlement entity from which you received payments in settlement of reportable payment transactions. A reportable payment transaction is defined as a payment card transaction or a third-party network transaction. A third party network transaction may include a payment through a payment app.” If you are a small business owner that utilizes third-party apps to do business, expect a lot more of these forms to be coming your way next year. Maintaining up-to-date records of your transactions now is critical in making sure your business earnings are appropriately tracked so you can pay the right amount of taxes come next year.
At ARF Financial, we always have our ears to the ground on the latest information for small business owners–especially when it comes to finances. Stop back to the Financial Pantry every week for more news and advice on how to make your business a success in 2023 and beyond.