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?
One major recent change is that filers are required to report payments in settlement of third party network transactions of $600 or more in aggregate, regardless of the number of transactions. This is a huge change compared to prior tax years, as the threshold was a total of $20,000 and a total of 200 or more transactions.
Please note: the threshold change had been delayed in the past, so it could be delayed again. Check back here for more updates on this!
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 $600 or more in payments from transactions of payment cards or third party networks.
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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