Big Changes to the 1099-K reporting For TY 2022

We all know that that the COVID-19 Pandemic has been horrible in so many ways. With the American Rescue Plan Act of 2021 passing in the House and Senate, President Biden has signed the Bill into Law. This law will help in many ways, such as a $1,400 payment to qualified Americans, a $300 boost to those on unemployment, $14 billion to support the airline industry, and many more initiatives. One element of the stimulus bill, though, that many may not know or care about. It may not seem like a big deal but, it could impact tens of millions of small payment card merchants.

 IRC 6050W was made law and placed into effect on Jan 7, 2011. It required that all gross reportable payments made in settlement of payment cards and third-party network transactions be reportable on the new IRS Form 1099-K. The new 1099-K was confusing to many, but one part of the law remained confusing. If you were classified as a Third Party Settlement Organization (TPSO), then a de minimis rule said that only forms that exceeded 200 transactions AND $20,000 in gross reportable sales were reportable to the IRS. That meant that if you were not a TPSO and only had one transaction for a total of $10, that was reportable to the IRS. On the flip side, if you were a TPSO and had 199 transactions and had $1M in sales, that was NOT considered reportable to the IRS because it did not meet the de minimis rule of 200 transactions.

 In effect, 200 transactions plus the $20,000 de minimis rule is not 200 or $20,000, it’s AND. So, both had to be met for the form to be reportable. Really? Yes! It was a crazy de minimis rule that IRPAC argued for years. Just think about how many transactions may have gone through without ever being reported to the IRS. This oversight is precisely what the IRS will now be looking for.

When this new law takes effect, the de minimis rule will be replaced with a simple $600 minimum threshold amount. Those who had the 199 transactions with thousands or millions of dollars in sales were not reportable to the IRS, but now they will be. If that person had the 199 transactions with $100,000 in sales and they still reported that to the IRS as income, then no worries, but if they were not reporting that income, they would be now. The IRS will be counting on that increased tax revenue. According to the Dec 30, 2020 Treasury Inspector General for Tax Administration Report, it was noted that billions of dollars may have gone by unreported.

 The burden will now be on the payment card processors as they potentially now must report on millions or tens of millions that fell into that TPSO de minimis rule. This change will go into effect for TY 2022.