New reporting requirements for 1099-K

Previously, receiving a Form 1099-K was relatively rare. The form, technically known as Form 1099-K Payment Card and Third-Party Network Transactions, was used to report payments received from various third-party resources. Prior to 2022, the monetary threshold to receive a 1099-K was $20,000, with 200 sales-related transactions required. Both conditions had to be met to receive a 1099-K.

But thanks to a bill incorporated into the American Rescue Plan Act that passed in 2021, anyone who sells more than $600 worth of goods with any number of transactions, even just one, will receive the newly created Form 1099-K. revised.

If you’re a small business owner and receive the majority of customer payments by credit card, cash, or check, you probably won’t be affected. But if you use third-party settlement organizations to get paid, the rules have changed. In 2022, companies like Zelle, PayPal, Square, Stripe, Venmo, and others will send you a 1099-K if you receive more than $600 in payments during the year. Uber and Lyft are also considered third-party settlement organizations or use an organization to pay their employees, so if you’ve had a few gigs with either, you’ll also receive a 1099-K.

The American Rescue Plan Act specifies that reporting requirements are limited to goods and services only, so this will not affect any funds you may receive from friends and family, so you can transfer money to your children without having to pay taxes on them. Unfortunately, there isn’t really a good way to tell the difference between the two at this time, which can lead to transactions being misreported on Form 1099-K (and to the IRS) that shouldn’t be reported. ‘be.

The end result of this change is that people who have been selling small amounts of goods on eBay, Etsy, and other selling platforms to make ends meet may suddenly find themselves saddled with increased taxes. From an accountant’s perspective, this means more small business clients will include a 1099-K with their year-end documentation. Another downside to this new report is that Form 1099-K does not include credits, discounts, charges, or returns in its reported total, leaving it up to the individual to spend these items separately. It also means that more individual filers may find themselves required to file a Schedule C to report additional income.

Not everyone agrees with these changes. Organizations such as eBay are currently lobbying Congress to raise the threshold to $20,000 from origin, although that likely won’t happen as this change is part of how the government pays for American Rescue. Plan Act. However, there is currently a bill in Congress that would raise the threshold from $600 to $5,000, but it is unclear if the bill, if passed, would impact the year. taxation 2022.

Regardless of the outcome, small business owners, new gig workers, and accountants should be prepared for an influx of 1099-K forms in 2023.

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