New Form 1099-K Filing Requirements for 2022

The American Rescue Plan Act of 2021 changed the filing requirement for Form 1099-K (Payment Card and Third Party Network Transactions) such that, beginning January 1, 2022, third-party settlement organizations (TPSOs) must send Form 1099-K to payees who have business transactions of more than $600 in a calendar year through their networks. (Previously, TPSOs were allowed a de minimis exception to filing Form 1099-K with respect to payees with 200 or fewer transactions during the calendar year with an aggregate gross amount of $20,000 or less.) This change will substantially increase the number of Forms 1099-K required to be filed with the IRS and furnished to payees by TPSOs.

Form 1099-K Filing Requirements

Payment settlement entities (PSE) must file Form 1099-K to report aggregate payments of more than $600 for goods and services made in settlement of a payment card transaction or a third-party network transaction for each participating payee. (The requirement does not cover “personal” payments such as gifts, charitable contributions, and reimbursements.) The PSE must also report the name, address, and TIN of the participating payee.

PSEs must file the information return with the Internal Revenue Services (IRS) on or before February 28 (March 31 if filing electronically) of the year following the calendar year for the return. It must also send the information return to the participating payee on or before January 31 of the year following the calendar year for the return.

PSEs and Participating Payees

A PSE is a “merchant acquiring entity,” which is a domestic or foreign bank or other organization that has the contractual obligation to make payment to participating payees in settlement of transactions in which a payment card (i.e., a credit or debit card) is accepted as payment. A PSE can also be a TPSO, which is a central organization that has the contractual obligation to settle payments to participating payees of third-party network transactions. (Common examples of TPSOs are Cash App, eBay, PayPal, and Venmo.)

A “participating payee” is any person who accepts a payment card as payment or accepts payment from a TPSO in settlement of a third-party network transaction. Participating payees will receive a Form 1099-K from each PSE from which they received more than $600 of payments in a payment card or third-party network transaction during the calendar year.

Impact on Businesses and Individuals

Form 1099-K is intended to help the IRS determine the accuracy and completeness of income tax returns by capturing the portion of income received through online and third-party payment networks. Businesses and individuals that receive third-party payments for commercial transactions through payments apps or other third-party payment networks should track these payments to ensure that any Forms 1099-K received are accurate. In addition, since Form 1099-K reports gross payments received, payees will need to keep accurate records of the expenses associated with those payments in order to report the correct net income from Form 1099-K transactions on their income tax returns.

Proposed Legislation

Two House Democrats, Reps. Cindy Axne (D-Iowa) and Chris Pappas (D-N.H.), introduced legislation on March 14, 2022, that would raise the Form 1099-K reporting threshold for TPSOs from $600 to $5,000. The lawmakers expressed concerns about people receiving Forms 1099-K after selling used personal goods via the internet for less than what they initially paid for the items but nonetheless reporting those payments as taxable income.

Republicans have also introduced bills in the House and the Senate that would restore the original $20,000 and 200 transactions de minimis filing threshold for TPSOs. Thus, there is bipartisan support for increasing the reporting Form 1099-K filing threshold for TPSOs, and that support may soon result in an increased filing threshold of $5,000 or more.

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