IRS Form 1099-K & TPSO Reporting Explained

Understanding 1099-K and Third-Party Payment Platform Reporting

Businesses utilizing third-party payment platforms may find themselves needing to file a 1099-K form with the IRS. This in-depth guide clarifies IRS reporting requirements, the impact of new regulations, and how XTRM can automate 1099-K generation and delivery, ensuring seamless tax compliance.

Who is Required to File a 1099-K?

The IRS mandates that Third-Party Settlement Organizations (TPSOs) file a 1099-K form for any participating payee who meets specific transaction and gross payment thresholds. These thresholds are subject to change and differ based on the type of payment platform and the nature of the transactions.

Understanding IRS Thresholds for Reporting

1. Minimum Transaction Volume:
   • This refers to the total number of transactions processed for a payee within a calendar year.
   • The current threshold for most TPSOs is 200 transactions.
   • However, some states may have lower thresholds, and certain payment platforms may have internal policies that trigger 1099-K reporting even below the federal minimum.
2. Gross Payment Amount:
   • This refers to the total amount of money received by a payee through the TPSO within a calendar year.
   • The current federal threshold for 1099-K reporting is $20,000.
   • Similar to transaction volume, some states and payment platforms may have lower gross payment thresholds.
3. Specifics for Different Payment Platforms:
   • The IRS provides guidelines for various payment platforms, such as:
     • Payment Card Processors: These include companies that process credit and debit card transactions.
     • Third-Party Network Payment Platforms: These include companies that facilitate payments between buyers and sellers, such as online marketplaces and peer-to-peer payment apps.
     • Other Payment Settlement Entities: This category encompasses a broad range of payment processors that may not fall neatly into the other categories.
   • It’s crucial for payees to understand the specific requirements for the platforms they use, as reporting thresholds and procedures may vary.

Key Points to Remember

• State Requirements: Payees should be aware of any state-specific reporting thresholds, as these may be lower than federal requirements.
• Business vs. Personal Payments: Generally, 1099-K reporting applies to payments for goods and services, not personal gifts or reimbursements. However, the distinction can be blurry, so payees should consult with a tax professional if unsure.
• Penalties for Non-Compliance: TPSOs and payees can face penalties for failing to file or report 1099-K information accurately.

By understanding the IRS thresholds and specific requirements for different payment platforms, payees can ensure compliance with 1099-K reporting and avoid potential penalties.

Simplify Your 1099-K Filing with XTRM

Ensure smarter, effortless tax compliance with XTRM’s automated 1099-K solution. Streamline your tax reporting and save valuable time and effort. Learn more when you book a call with our sales team.

Disclaimer:

This guide is for informational purposes only and should not be construed as tax or legal advice. Consult with a qualified professional for specific guidance related to your business.