In late December 2022, the IRS announced in Notice 2023-10 that it would delay implementation of the reduced $600 reporting threshold for Form 1099-K by one year, to calendar year 2024. The announcement came as a relief to the millions of small business owners and individual sellers who use third-party payment platforms like PayPal, Venmo, Square, and Stripe, and who had been bracing for a dramatic expansion in information reporting for the 2022 tax year. While the delay provides breathing room, it does not eliminate the new requirement—and business owners should use this reprieve to prepare.^[1]

Background: What Changed and Why

Form 1099-K is the information return used by third-party settlement organizations (TPSOs) and payment card networks to report payment transactions to the IRS and to the payee. Before the American Rescue Plan Act of 2021, a TPSO was required to file a 1099-K only if the aggregate payments to a single payee exceeded $20,000 and the number of transactions exceeded 200 in a calendar year. These dual thresholds meant that relatively few small businesses and individual sellers received a 1099-K.^[2]

Section 9674 of the American Rescue Plan dramatically lowered these thresholds. Beginning with calendar year 2022 (as originally enacted), a TPSO would be required to file a 1099-K for any payee receiving more than $600 in aggregate payments, with no minimum transaction count. This represented a more than 97 percent reduction in the dollar threshold and the complete elimination of the transaction-count requirement. The IRS estimated that the number of 1099-K forms issued would increase from approximately 14 million to over 30 million annually.

The Delay and Its Implications

The IRS announced the delay on December 23, 2022—just eight days before the new threshold would have taken effect. The Service cited concerns about taxpayer confusion and the need for additional time to implement an effective transition. Under the delay, the pre-existing thresholds of $20,000 and 200 transactions remain in effect for calendar year 2022 (and, as later announced, for 2023 as well). The $600 threshold is expected to take effect for calendar year 2024, although the IRS has indicated it may implement a phased approach rather than an immediate drop to $600.^[3]

It is important to understand what the delay does and does not change. The delay affects only the reporting threshold—that is, when a TPSO must issue a 1099-K. It does not change the underlying tax obligation. Income received through third-party payment platforms has always been taxable, regardless of whether a 1099-K was issued. Business owners who receive payments through PayPal, Venmo, or similar platforms are required to report that income on their tax returns whether or not they receive a 1099-K.

Who Is Affected

The reduced threshold, when it takes effect, will primarily affect three groups. First, small businesses that accept payments through third-party platforms but have not historically received a 1099-K because their transactions fell below the $20,000/200-transaction thresholds. This includes many sole proprietors, freelancers, and small LLCs that use payment apps as their primary payment processing method. Second, individuals who sell goods through online marketplaces like eBay, Etsy, and Facebook Marketplace. While casual sellers of personal items at a loss generally do not owe tax on those sales, they will now receive a 1099-K and will need to properly report the transactions on their return. Third, gig economy workers who receive payments through platforms that use third-party settlement organizations.

Practical Steps for Business Owners

The delay gives business owners time to prepare, and that time should be used productively. We recommend several steps. First, ensure that your business’s tax identification number (EIN or SSN) is correctly recorded with every payment platform you use. When the $600 threshold takes effect, the 1099-K will be matched against your tax return, and discrepancies between the name and TIN on the 1099-K and on your return will generate IRS notices. Second, review your recordkeeping practices. You should be able to reconcile every 1099-K you receive with your own books and records, identifying which payments represent taxable income, which represent reimbursements or non-taxable transactions, and which may be duplicated across platforms.^[4]

Third, understand the difference between gross receipts and net income. A 1099-K reports gross payment volume—it does not account for refunds, returns, fees, or the cost of goods sold. A seller who receives $10,000 in gross payments but incurs $7,000 in costs owes tax only on the $3,000 of net income, not the full $10,000. But the IRS will see the $10,000 figure on the 1099-K, and your return must clearly account for the difference.

Finally, be alert for erroneous 1099-K forms. As the threshold drops and the volume of forms increases, errors are inevitable. If you receive a 1099-K that includes personal transactions (such as splitting a dinner check through Venmo) or that reports an incorrect amount, contact the issuing platform immediately to request a corrected form. If a correction cannot be obtained before the filing deadline, report the 1099-K amount on your return and include an offsetting adjustment with an explanation.

The $600 threshold is coming—it is a question of when, not whether. Business owners who use the current delay period to organize their records and update their payment platform information will be far better positioned when the new reporting regime takes effect.