The IRS recently updated its guidance for completing Form 1099-K, used primarily by “gig” companies providing compensation using payment apps or online marketplaces and for individuals selling goods on online marketplaces such as Etsy. As background, in order to promote greater tax transparency and compliance, in 2008 Congress enacted Internal Revenue Code section 6050W to require that certain “third party network transactions” be reported on the then-new Form 1099-K. As originally enacted, no 1099-K was required unless the payee had at least 200 transactions and the amount reported exceeded $20,000.
As a practical matter, this meant that much of the “gig” economy escaped tax reporting under this provision. In light of this problem, Congress amended the 1099-K thresholds to eliminate the 200-transactions minimum and drop the filing threshold amount to $600, consistent with both the 1099-MISC and 1099-NEC, beginning with the 2022 tax year. The IRS delayed implementation of these of the new thresholds to 2023 and agreed not to assert penalties unless the old 1099-K thresholds were met.1 In November 2023 the IRS again announced it was delaying implementation of the new 1099-K thresholds until 2024, sparing the 2023 filing season.2
In February 2023 the IRS published a fact sheet (FS-2024-04, February 2024), which updated the Frequently Asked Questions on Form 1099-K that it had issued in March 2023.3 There are a number of changes to the FAQs that seek to expand and clarify the information about when a 1099-K payment may or may not be taxable to recipients, among other topics. For example, the FAQs make clear that a 1099-K should never be issued for making a purchase of goods or services, but only issued to a person who sells goods or provides services.4 It also makes clear that a 1099-K should not be issued if a 1099-MISC or 1099-NEC is issued for the payment.5
The FAQs also provide some new questions and answers intended to provide some general guidance relating to “gig” work. For example, the FAQs explain:
[I]f you are getting paid as a ride share driver, you could report the payment as income on your Form 1040, Schedule c, Profit or Loss from Business (Sole Proprietorship). You will need to review the forms, determine if the amount is correct, and determine any deductible expense using your tax records when you file your return because the Form 1099-K reports only gross payments.6
Another new FAQ addresses 1099-K donations received through crowdfunding.7
Similar to all information returns and tax reporting obligations imposed on employers, it is imperative to know the requirements for issuance, including due dates and electronic filing obligations, to avoid penalties. While 1099-K filing remains at the old thresholds for 2023, there is no guarantee that will also be true for the 2024 filing season, and employers should be prepared to address any obligations they may have under Code section 6050W to issue 1099-Ks at the lower threshold.