As we head toward the latter stages of our spring U.S. tax information filing season, tax information reporting teams should be aware of several March tax updates.
First, the IRS has extended the deadline for 2020 Form 5498 filings relating to IRA contributions to 30 June 2021 from 1 June 2021. Second, the American Rescue Plan enacted in March reduces the Form 1099-K filing thresholds for third-party network processors to $600. Finally, the IRS has issued an announcement outlining the requirements for required minimum distributions (RMDs) from retirement plans for 2021, which is helpful given the various twists and turns regarding RMDs over the past year.
- With the extension of the 2020 individual tax return and IRA contribution deadline to 17 May 2021, the IRS has also announced the extension of the 2020 Form 5498 deadline from 1 June 2021 to 30 June 2021.
- The American Rescue Plan Act passed in March 2021 includes a change to Form 1099-K thresholds, replacing the $20,000 and 200 transactions threshold with a $600 payment threshold for third-party network processors.
- The IRS issued a reminder relating to the rules for required minimum distributions from retirement plans that were changed at the end of 2019, waived for 2020 under pandemic legislation but which resurfaces in 2021.
1. Form 5498 filing deadline extended
In Notice 2021-21, the IRS provided guidance relating to the extension of deadlines for certain tax filings and actions due to continued impact of the pandemic. Among these, the 2020 individual Form 1040 filing deadline has been extended from 15 April 2021 to 17 May 2021. This also means that IRA contributions for the 2020 tax year can be made as late as 17 May 2021.
In addition, the notice extends the corresponding deadline for when trustees and custodians such as brokers will need to file Form 5498 to report IRA contributions. The deadline for the 2020 Form 5498 is now extended from 1 June 2021 to 30 June 2021. This will allow additional time for brokers to process IRA contributions that may be made after 15 April. The 30 June extension also applies to Form 5498-ESA and Form 5498-SA.
Brokers should be aware, however, that due to winter storms, certain residents in Texas, Oklahoma and Louisiana have until 15 June 2021 to file taxes and make IRA contributions.
Based on prior guidance, the Form 5498 deadline for those affected areas appears to have been extended also to 15 June 2021. Notice 2021-21 would seem to extend all Form 5498 deadlines instead to 30 June 2021.
We are monitoring any additional guidance that may be issued for Form 5498 filings for Texas, Oklahoma and Louisiana.
2. Stimulus law changes filing thresholds for Form 1099-K
Buried in the American Rescue Plan Act passed in March 2021 is a provision that changes the filing threshold for Form 1099-K filings by third-party payment processors.
The current threshold for whether payments to a payee is reported by a third-party settlement organisation is $20,000 and 200 transactions. Under the new law, the filing threshold changes to a $600 calendar year payment threshold.
Form 1099-K is generally filed by merchant acquirers and what are known as third-party settlement organisations (TPSOs). TPSOs might be the operator of a multi-vendor online platform or a platform that allows gig workers to provide transportation or other services.
For TPSOs, Form 1099-K reporting is currently only triggered if a payee exceeded $20,000 in transactional value and had more than 200 transactions.
Section 9674 of the Act in essence conforms the filing threshold for Forms 1099-K to that of Form 1099-MISC and Form 1099-NEC, which harbours a $600 payment threshold. The change had been long sought by the U.S. Treasury as a means to reduce the gap in tax collections, especially given the growth of the gig economy.
From the financial services side, several institutions that facilitate crypto trades in the past have provided Forms 1099-K to report crypto transactions. The change in law will impact such filings as well, as it will reduce the threshold for such crypto tax reporting. (Separately, we are made aware that the IRS has recently filed a John Doe summons to obtain customer information from cryptocurrency exchange Kraken. Part of the reasons supporting the summons was the lack of third-party crypto information reporting.)
The changes to the Form 1099-K thresholds in the new law are effective for returns filed for calendar years beginning after 31 December 2021.
3. Twists and turns of required minimum distributions
In a news release (IR-2021-57) dated 16 March 2021, the IRS outlined the status of required minimum distributions under various scenarios relating to both IRAs and employer-sponsored retirement plans.
For IRAs, the IRS reminded taxpayers that individuals born on or prior to 30 June 1949 must generally take RMDs from the IRA when they turned 70 ½. Those who turned 70 ½ in 2019, however, had RMDs waived for 2020 under pandemic relief legislation. However, RMDs apply for them for 2021 and are due by December 31, 2021.
For individuals that turned or are turning 70 on or after 1 July 2019, RMDs are not triggered until they turn 72 due to changes enacted as part of the SECURE Act in 2019. Those turning age 72 in 2021 will have a first RMD due 1 April 2022 and a second RMD due 31 December 2022.
To avoid having two RMDs falling within the same year, such an individual can elect to have the first RMD paid out by 31 December 2021.
IRA trustees must generally report the amount of the RMD to the IRA owner or offer to calculate it for the owner. The RMD payments impact both Form 5498 and Form 1099-R reporting.
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