Form 1099-K information returns: New rules beginning 2022.

• Author: Pflieger, Deborah

The American Rescue Plan Act of 2021 (ARPA), P.L. 117-2, recently lowered the de minimis threshold for information reporting on third-party network transactions. This change will substantially increase the number of Forms 1099-K, Payment Card and Third Party Network Transactions, required to be filed with the IRS and furnished to recipients by thirdparty settlement organizations and their electronic payment facilitators.

Under the new rules, the threshold for the information reporting requirement will decrease to $600 (for any number of transactions), effective for 2022 Forms 1099-K (due to be filed in 2023).

Background

Under Sec. 6050W, a payment settlement entity that makes a reportable payment to a participating payee must meet certain information reporting requirements on Form 1099-K. A reportable payment can result from a payment card transaction or a thirdparty network transaction.

Payment card transactions are usually reported by banks acting as merchantacquiring entities, which process credit card transactions on behalf of a merchant. There is no de minimis dollar threshold for reporting payment card transactions.

Third-party settlement organizations (TPSOs) are generally marketplaces that connect buyers and sellers of goods or services. Transactions settled by TPSOs are thirdparty network transactions. Many web 2.0 e-commerce websites and gig-economy services are TPSOs for Form 1099-K reporting purposes.

A third-party payment network is any agreement or arrangement that:

* Involves the establishment of accounts with a central organization by a substantial number of providers of goods or services (generally considered to be more than 50) that are unrelated to the central organization and have agreed to settle transactions for the provision of goods and services with purchasers according to an agreement or arrangement;

* Provides standards and mechanisms for settling such transactions; and

* Guarantees payment to the providers of goods and services in settlement of transactions with the purchasers.

There is an exception from reporting by TPSOs for payments made through an electronic payment facilitator (EPF). When a TPSO contracts with an EPF to make payments in settlement of third-party network transactions on behalf of the TPSO, that EPF must file the applicable Forms 1099-K instead of the TPSO. There is no requirement that the EPF have any agreement or arrangement with the participating payee, and the payment need not be made...