Understanding Third-Party Settlement Organizations (TPSOs) and IRS Reporting: What You Need to Know

The Significance of Recent IRS Clarifications

In the ever-evolving landscape of taxation and financial reporting, staying informed about changes and clarifications made by the Internal Revenue Service (IRS) is crucial. A recent development that impacts businesses and individuals alike is the clarification on the definition of a Third-Party Settlement Organization (TPSO). In this blog, we’ll delve into what a TPSO is, why this clarification is significant, and how it affects your reporting obligations.

What is a TPSO?

A TPSO, or Third-Party Settlement Organization, is a term that may sound complex, but its essence is relatively straightforward. It refers to any entity that plays a pivotal role in facilitating payment processing between merchants and their customers. Common examples of TPSOs include credit card companies, payment processors, and online marketplaces. Let’s break down each of these elements:

1. Credit Card Companies

Credit card companies like Visa, MasterCard, and American Express are quintessential TPSOs. When you make a payment using a credit card, the transaction involves several parties: the cardholder (you), the merchant (the seller), and the credit card company (the TPSO). The credit card company ensures a smooth, secure, and instantaneous transaction, making them a crucial part of the payment process.

2. Payment Processors

Payment processors are entities that handle electronic payments on behalf of businesses. These can range from well-known companies like PayPal and Square to niche service providers. Payment processors act as intermediaries, allowing customers to pay for goods and services efficiently while ensuring that businesses receive their payments promptly.

3. Online Marketplaces

Online marketplaces, such as Amazon, eBay, and Etsy, are also considered TPSOs. They bring together buyers and sellers, manage the transaction process, and often hold funds in escrow until the transaction is complete. This role as intermediaries in the payment process categorizes them as TPSOs under the IRS guidelines.

The Significance of IRS Clarifications

The recent clarification by the IRS regarding TPSOs is not just a matter of semantics. It has a direct impact on your reporting obligations and potential tax liability. Here’s why it matters:

Lowered Reporting Threshold

The crux of the matter lies in the lowered reporting threshold for Form 1099-K. This form is used to report payment card and third-party network transactions to the IRS. The clarification establishes that this lowered reporting threshold exclusively applies to TPSOs. Previously, the threshold was set at $20,000 with 200 transactions. However, the new threshold mandates reporting when a payee receives payments that exceed $600 in a calendar year through a TPSO.

Reporting Obligations for Non-TPSO Payments

The IRS clarification brings good news for many businesses and individuals. If you receive payments from sources other than TPSOs and those payments exceed $600 in a calendar year, you are not obligated to report those payments to the IRS. This means that if your payment source doesn’t fall under the TPSO category, you can breathe easier when it comes to IRS reporting requirements.

Responsibility for Reporting Taxable Income

While the lowered reporting threshold for TPSOs simplifies reporting for many, it’s essential to remember that it doesn’t exempt you from your overall tax obligations. If you receive payments from non-TPSO sources that are subject to taxation, it remains your responsibility to report these payments to the IRS.

This underscores the importance of accurate record-keeping and understanding the specific tax implications of your income sources. While certain payments may not trigger mandatory IRS reporting, it doesn’t mean they are tax-free. Failing to report taxable income can lead to penalties and legal consequences.

Simplifying the Reporting Process with Form1099online

In light of these IRS clarifications, businesses and individuals need reliable tools to navigate the reporting process efficiently. Form1099online is one of the best online platforms available for filing Form 1099. This user-friendly platform streamlines the reporting process, making it easier to fulfill your tax obligations accurately and on time.

With Form1099online, you can:

  • Easily input and manage your income data.
  • Generate and submit Form 1099 accurately to the IRS.
  • Stay informed about IRS updates and requirements.
  • Access valuable resources to understand your tax obligations.


In conclusion, the recent clarification on the definition of a TPSO by the IRS is a significant development for taxpayers. It lowers the reporting threshold for Form 1099-K, making it easier for businesses and individuals to meet their IRS reporting obligations when dealing with TPSOs.

However, it’s vital to recognize that this clarification doesn’t absolve you from the responsibility of reporting taxable income from non-TPSO sources. Staying informed, maintaining accurate records, and using tools like Form1099online are essential steps in ensuring that you meet your tax obligations while avoiding potential penalties.

As the tax landscape continues to evolve, staying up-to-date with IRS guidance and using efficient reporting platforms is your key to financial compliance and peace of mind.