Lower Reporting Thresholds Apply to Third Party Network Payments Beginning in 2022

(Parker Tax Publishing January 2022)

Beginning with 2022, taxpayers that use Paypal, Venmo, and other third-party networks to receive payments for goods and services will receive a Form 1099-K, Payment Card and Third Party Network Transactions, if the aggregate amount of the 2022 payments for the year exceeds $600, regardless of the number of transactions. This new, lower reporting threshold is a result of changes made by the American Rescue Plan Act of 2021.

Under Code Sec. 6050W(a), every payment settlement entity (PSE) that makes payments in settlement of reportable payment transactions in a calendar year must file Form 1099-K, Merchant Card and Third Party Network Payments, for each participating payee for that calendar year. A PSE makes a payment in settlement of a reportable payment transaction, that is, any payment card or third party network transaction, if the PSE submits the instruction to transfer funds to the account of the participating payee to settle the reportable payment transaction.

A third party payment network is any agreement or arrangement that provides for: (1) the establishment of accounts with a central organization by a substantial number of providers of goods or services who are unrelated to the organization and who have agreed to settle transactions for the provision of the goods or services to purchasers according to the terms of the

agreement or arrangement; (2) standards and mechanisms for settling the transactions; and (3) a guarantee of payment to the persons providing goods or services (participating payees) in settlement of transactions with purchasers pursuant to the agreement or arrangement.

The Form 1099-K reporting requirement for third party network transactions is subject to certain de minimis thresholds under Code Sec. 6050W(e). Before 2022, a PSE was not required to file and furnish a Form 1099-K unless (1) the aggregate value of third-party network transactions with respect to a taxpayer for the year exceeded $20,000, and (2) the aggregate number of the transactions for the year exceeded 200. However, the American Rescue Plan Act of 2021 (ARP) (Pub. L. 117-2) lowered and modified the reporting threshold for third party network transactions. Beginning in 2023 for transactions occurring in calendar year 2022, if the aggregate amount of third party network transactions exceeds $600 for the calendar year, then a Form 1099-K is required regardless of the number of transactions. In addition, the ARP clarified in Code Sec. 6050W(d)(3) that third party network transactions only include transactions for the provision of goods or services. Thus, personal gifts, charitable contributions, and reimbursements are not included.

Observation: The amount reported on Form 1099-K is the unadjusted gross amount of third party network transactions and does not include any adjustments for credits, discounts, fees, or refunded amounts.

For a discussion of Form 1099-K reporting requirements, see Parker Tax ¶252,557.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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