IRS Form 1099-K is used to report payments in settlement of reportable payment transactions each year. A payment in settlement of a reportable payment transaction is any payment card or third party network transaction.
What’s new for Form 1099-K?
The OBBA reversed the Form 1099-K changes implemented in the American Rescue Plan Act of 2021 which reduced the filing threshold to $600 and no transaction minimum.
Filing is required if payments with any payee exceeds the threshold of $20,000 and 200+ transactions.
The IRS recently switched to a continuous-use form and instructions for Form 1099-K, instead of annually updated forms.
Who must file this form?
Payment settlement entities (PSE) must file Form 1099-K for any payee that exceeds the minimum threshold of $600 in aggregate payments, regardless of the number of transactions.
What is a Payment Settlement Entity?
A Payment Settlement Entity (PSE) is:
- PSE as a Merchant Acquiring Entity
- This can be a bank or other organization
- It has a contractual obligation to pay the businesses that accept payment cards, such as credit cards, after a transaction is made.
- PSE as a Third Party Settlement Organization (TPSO)
- This is a central organization
- It has a contractual obligation to pay the businesses that are part of a third party network, such as those using online platforms where sellers offers products or services.
Who receives a Form 1099-K?
A “participating payee,” or a “payee,” is anyone who receives a total of $20,000 or more in payments from 200+ transactions of payment cards or third party network transactions.
What information is required to file?
The information required for preparing a Form 1099-K includes basic information for the filer and the payee, information about the transactions, and state tax information, if applicable.
As always, it’s good to double-check all information within a filing to avoid any potential errors which can lead to penalties.
Conclusion
Form 1099-K is an important form for both PSE and participating payees. Due to the lowered threshold of only $600, it’s imperative that filers maintain accurate records and reporting for all transactions to best avoid penalties. Another way to avoid penalties is to ensure on-time filing. Review the deadlines today to stay up to date!
BoomTax, The Boom Post, and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors prior to engaging in any transaction.
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