Kelly Bullis
Ever heard the term “Third Party Settlement Organization” (TPSOs for short)?
The official IRS definition is, “The central organization which has the contractual obligation to make payment to participating payees of third-party network transactions.” Now that is a mouthful.
I bet you’ve heard of the following companies… Venmo, PayPal, E-Bay, Stubhub, etc. But NOT Zelle. (Why not Zelle? Because it is a tool used directly between banks only.)
If you use a TPSO, you can expect to be impacted by the new IRS reporting rules for TPSOs.
Previously, TPSOs were only required to send out 1099-K forms when a business had 200 or more business transactions during the year totaling more than $20,000.
One of Joe Biden’s first bills, The American Rescue Plan Act of 2021, tightened up the reporting rules for TPSOs. (I wonder how making life more complicated is “rescuing” anybody.) It dropped the threshold to $600 from $20,000, regardless of the number of transactions. The IRS postponed this change twice.
Now the IRS has issued a new transitioning rule that states that 1099-K reporting is required for business transactions totaling more than $5,000 in 2024 and more than $2,500 in 2025. Then it will drop to $600 in 2026.
There is a caveat. It is not supposed to apply to personal-related transactions. How a TPSO will be able to determine what is “business” and what is “personal” is beyond me. Maybe they have an AI employee who will figure that out on a transaction-by-transaction basis. I still don’t trust AI and I bet my mistrust is going to be proved correct. Be ready to receive a 1099-K if you are just cleaning out your garage and selling your stuff on eBay.
This new 1099-K reporting rule is going to draw more attention from the IRS if you get one. They think everybody is a criminal and not reporting income, using TPSOs to escape attention.
If you receive a 1099-K, you should report it on your tax return. If it is erroneous and is only related to personal items, you will need to show on your tax return the gross 1099-K amount and then deduct off personal use amounts.
I bet sometime in the future, IRS will try to tighten this by requiring more substantiation of personal use. Hmm, maybe President Trump’s idea of increasing the standard deduction to $150,000 per person is starting to sound better and better. (If your income is less than that, then your reporting problems from 1099-Ks will go away.)
Have you heard? Ecclesiastes 1:10a says, “Is there a thing of which it may be said, ‘Behold, this is new’?”
Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 775-882-4459. On the web at BullisAndCo.com. Also on Facebook.