The Internal Revenue Service (IRS) has issued Notice 2024-85, providing transition relief for third-party settlement organizations (TPSOs), including payment apps and online marketplaces, concerning transactions in calendar years 2024 and 2025.
Under the new guidance:
- TPSOs must report transactions exceeding $5,000 in total payments for 2024.
- For 2025, the reporting threshold lowers to $2,500.
- Beginning in 2026 and beyond, TPSOs must report all transactions totaling more than $600.
Additionally, for calendar year 2024, the IRS will not impose penalties under sections 6651 (failure to file/pay tax) or 6656 (failure to make deposit of taxes) if a TPSO fails to withhold and remit backup withholding tax.
However, TPSOs that conduct backup withholding for a payee in 2024 must still file Form 945 and Form 1099-K with the IRS and provide a copy to the payee.
Starting in 2025, the IRS will enforce penalties under sections 6651 and 6656 for TPSOs that fail to properly withhold and pay backup withholding taxes.
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