Transition relief for third-party settlement organizations and Form 1099-K

The IRS issued Notice 2024-85 which provides transition relief for third-party settlement organizations (TPSOs), also known as payment apps and online marketplaces, regarding transactions during calendar years 2024 and 2025.

Under the new guidance, TPSOs will be required to report transactions when the amount of total payments for those transactions reaches a certain amount, which varies by year. TPSOs will be required to report transactions when the amount of total payments for those transactions is more than $5,000 in 2024; more than $2,500 in 2025; and more than $600 in calendar year 2026 and after.

TPSOs that have performed backup withholding for a payee during calendar year 2024 must file a Form 945 and a Form 1099-K with the IRS and furnish a copy to the payee.

The IRS won’t assert penalties for calendar year 2024. However, for calendar year 2025 and after, the IRS will assert penalties if a TPSO fails to withhold and pay backup withholding tax.