The Unmistakable Sign Your Financial Journey is About to Change: Updated Rules for Third-Party Settlement Organizations
If you’ve been selling goods or services online, it’s likely you’re familiar with the need to report some of your income to the IRS. In the past, you only need to report income from third-party settlement organizations if it exceeded $20,000 for the year and took place in more than 200 transactions.
But with the introduction of the American Rescue Plan (ARP), that threshold is about to change dramatically—and with it, the tax journey of many Americans, too.
What to Expect from the New Reporting Threshold
From 2023, anyone who makes more than $600 from third-party payment platforms such as PayPal, Venmo, and Cash App across fewer than 200 transactions, will have to report income under the new rules—meaning the IRS will receive a tax form reporting the sale. Here’s what the timeline looks like:
2023: Transactions Involving $20,000+ Over 200 Transactions
In 2023, the reporting requirement will only apply to the sale of goods or services involving more than 200 transactions and more than $20,000. This is the same threshold that was in place prior to the American Rescue Plan.
2024: Transactions Involving $5,000+ Over 200 Transactions
In 2024, the reporting threshold will fall to $5,000. This can be seen as the transition from the old regime to the new one which begins in 2025.
2025: Transactions Involving $600+
Finally, the $600 reporting threshold will take effect in 2025, meaning any payments over this amount for goods and services will trigger a 1099-K tax form.
What to Remember About the New IRS Rule
It’s important to note that only transactions that result from the sale of goods or services will count towards the $600 threshold. Gifts, such as someone sending you money for a birthday present, will not impact the $600 cutoff.
Another key thing to note is that the introduction of the new rule in 2025 is yet to be finalized. There has already been one delay, and an uncertain future given how unpopular the new reporting requirement is.
Stay Informed: Don’t Miss Out on Your Money
If you make an income from selling online, it’s vital that you keep up with the latest developments from the IRS. Knowing what’s coming up and when could save you a lot of headache (and money) come tax season.
Takeaway: Don’t Miss a Chance to Maximize Your Earnings
If you rely on income from third-party payment organizations, it’s more important now than ever to stay informed and optimize your earnings to get the most out of tax season. By tracking the upcoming changes from the IRS, you open up chances to maximize your finances and reduce the tax burden on your wallet.
Ready to Make the Most of the Upcoming Changes? Learn More About How the $600 IRS Reporting Threshold Will Impact You Now!