Form 1099-K: What Businesses Should Know About New Threshold and Tax Implications

Businesses that utilize PayPal, Venmo, Cash App, and other platforms to receive payments for goods and services should understand the process involving Form 1099-K, especially regarding year-end preparations and tax filing.

What is Form 1099-K?

Form 1099-K is used to report the yearly gross amount of transactions (e.g., digital payments, credit card/debit cards, store value of gift cards, payment apps, and online marketplaces) that go through third-party settlement organizations (TPSO). The form is used to report taxable income.

TPSOs are required to send a copy of a 1099-K to a business or employer by January 31 each year after filing the form with the Internal Revenue Service, but only if the threshold for a singular transaction or a combination of transactions is more than $600.

Note: The 1099-K should not include reimbursement of personal expenses, such as a friend or family member paying back money for dinner. These types of reimbursements or even monetary gifts sent via a TPSO should be marked personal to avoid confusion and ultimately inclusion in the reporting.

Why Did the Form 1099-K Threshold Change?

In 2021, the American Rescue Plan Act changed the reporting threshold on business transactions for TPSOs. The intent was to provide the federal government access to billions of taxable income dollars that go unreported through payment apps such as PayPal, Venmo, Cash App, and others, as well as online marketplaces.

The $600 reporting threshold is new in 2023, a significant change from its original $20,000 (and more than 200 transactions). Businesses or employers should receive a 1099-K from every third-party settlement organization they used where the gross amount in dollars for transactions exceeded the $600 threshold.  

What’s Next?

There have been discussions in Congress about changing the threshold again, raising it closer to the original threshold. There is the potential about meeting somewhere in the middle, as well. This is being monitored, so return to this article for updates in the future.