How the American Rescue Plan Affects Form 1099-K

The American Rescue Plan brought many different changes to businesses, and one of the things that is changing is the Form 1099-K reporting threshold for third-party settlement organizations. The old rule, which remained the rule for the 2020 and 2021 tax years, centered around a $20,000 minimum per 200 transactions per payee. The new rule focuses on the total value of transactions per year ($600 or more) instead of the number of total transactions. How will this change your filing process?

Changes to the 1099-K Due to the American Rescue Plan

In the past, third-party payment networks needed to report via Form 1099-K for credit and debit card payments or electronic payment transfers to a business if there were more than 200 transactions for services or goods that exceeded $20,000. As the tax year rolls over, the threshold has been dramatically lowered to only $600 in aggregate payments with no requirement for transaction count. This will go into effect for all transactions that are settled after December 31, 2021.

How Will This Impact Your Business?

Because of this requirement of the American Rescue Plan, your company will be impacted if you use third-party payment networks to settle your transactions. These third-party payment networks can include online payment platforms, internet payment service providers and marketplaces. It’s important to note that personal gifts, charitable donations and reimbursements are exempt from this reporting.

In terms of how this impacts your business, if you are a third-party settlement organization, you will need to do much more tax filing over the course of the year. The reduction in threshold also means that you will need to streamline your TINS collecting processes to adjust for the much lower threshold. If you wait too long to collect TINS, it could complicate the tax filing process and expose you to excessive backup withholding obligations or even a liability depending on what happens. We can help prepare you for this change and talk with you about how your business might be impacted by this provision and the American Rescue Plan in general.

Financial Planning for Your Business from MKS&H

MKS&H provides tax and accounting services to businesses of every size and in every industry, including businesses just like yours. Our team can help your business gain confidence in your important accounting reports and make better, more educated financial decisions. Contact us today for a consultation.

About MKS&H: McLean, Koehler, Sparks & Hammond (MKS&H) is a professional service firm with offices in Hunt Valley and Frederick. MKS&H helps owners and organizational leaders become more successful by putting complex financial data into truly meaningful context. But deeper than dollars and data, our focus is on developing an understanding of you, your culture and your business goals. This approach enables our clients to achieve their greatest potential.

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