Form 1099-K, Payment Card and Third-Party Network Transactions, is an IRS form that is used to report certain payment transactions.
If taxpayers receive a Form 1099-K, they should use that information with their other tax records to determine their correct tax liability. Taxpayers must report all their income on their tax return unless it’s excluded by law, regardless of whether they receive a Form 1099-K.
Taxpayers will receive Form 1099-K for business transactions, including income from:
• A business the taxpayer owns.
• Self-employment.
• Activities in the gig economy.
• The sale of personal items and assets.
Money received as a gift or for reimbursement does not require a 1099-K. Taxpayers can minimize the chance of an error by asking friends or family members to correctly designate that type of payment as a non-business-related transaction. The taxpayer should also make a note of what the payment was for and who sent it. Good recordkeeping is key.
What to do when a Form 1099-K is incorrect
Some taxpayers may have received a Form 1099-K for the sale of personal items, or Form 1099-K may have been issued in error – such as for transactions between friends and family, or expense sharing.
If the information is incorrect on the Form 1099-K, taxpayers should contact the issuer immediately. The issuing organization’s name appears in the upper left corner on the form. Taxpayers should keep a copy of all correspondence with the issuer for their records.
If a taxpayer receives a Form 1099-K in error and the taxpayer cannot obtain a corrected Form 1099-K, the taxpayers should follow the IRS’ updated guidance at Understanding Your Form 1099-K.
1099-K reporting threshold for tax year 2023
The American Rescue Plan of 2021 changed the reporting threshold requirement for payment apps, also known as third-party settlement organizations. The IRS announced that the new Form 1099-K reporting threshold will start in tax year 2023.
• The old threshold was $20,000 and 200 transactions per year. This applies to tax year 2022 and prior years.
• The new threshold is more than $600. This applies to tax year 2023 and future years.
The threshold change means some people may receive a Form 1099-K who have not received one in the past. There are no changes to what counts as income or how tax is calculated.
Tag: 1099-k
WASHINGTON — The Internal Revenue Service today announced a delay in reporting thresholds for third-party settlement organizations set to take effect for the upcoming tax filing season.
As a result of this delay, third-party settlement organizations will not be required to report tax year 2022 transactions on a Form 1099-K to the IRS or the payee for the lower, $600 threshold amount enacted as part of the American Rescue Plan of 2021.
As part of this, the IRS released guidance today outlining that calendar year 2022 will be a transition period for implementation of the lowered threshold reporting for third-party settlement organizations (TPSOs) including Venmo, PayPal and CashApp that would have generated Form 1099-Ks for taxpayers.
“The IRS and Treasury heard a number of concerns regarding the timeline of implementation of these changes under the American Rescue Plan,” said Acting IRS Commissioner Doug O’Donnell. “To help smooth the transition and ensure clarity for taxpayers, tax professionals and industry, the IRS will delay implementation of the 1099-K changes. The additional time will help reduce confusion during the upcoming 2023 tax filing season and provide more time for taxpayers to prepare and understand the new reporting requirements.”
The American Rescue Plan of 2021 changed the reporting threshold for TPSOs. The new threshold for business transactions is $600 per year; changed from the previous threshold of more than 200 transactions per year, exceeding an aggregate amount of $20,000. The law is not intended to track personal transactions such as sharing the cost of a car ride or meal, birthday or holiday gifts, or paying a family member or another for a household bill.
Under the law, beginning Jan. 1, 2023, a TPSO is required to report third-party network transactions paid in 2022 with any participating payee that exceed a minimum threshold of $600 in aggregate payments, regardless of the number of transactions. TPSOs report these transactions by providing individual payee’s an IRS Form 1099K, Payment Card and Third-Party Network Transactions.
The transition period described in Notice 2022-10, delays the reporting of transactions in excess of $600 to transactions that occur after calendar year 2022. The transition period is intended to facilitate an orderly transition for TPSO tax compliance, as well as individual payee compliance with income tax reporting. A participating payee, in the case of a third-party network transaction, is any person who accepts payment from a third-party settlement organization for a business transaction.
The change under the law is hugely important because tax compliance is higher when amounts are subject to information reporting, like the Form 1099-K. However, the IRS noted it must be managed carefully to help ensure that 1099-Ks are only issued to taxpayers who should receive them. In addition, it’s important that taxpayers understand what to do as a result of this reporting, and tax preparers and software providers have the information they need to assist taxpayers.
Additional details on the delay will be available in the near future along with additional information to help taxpayers and the industry. For taxpayers who may have already received a 1099-K as a result of the statutory changes, the IRS is working rapidly to provide instructions and clarity so that taxpayers understand what to do.
The IRS also noted that the existing 1099-K reporting threshold of $20,000 in payments from over 200 transactions will remain in effect.
A new $600 reporting threshold for IRS Form1099-K involves payment networks like Venmo, PayPal, Amazon, Square, and Cash App.
Did you get paid more than $600 in 2022 for goods or services through a third-party payment network like Venmo, PayPal, Amazon, or Square? Then, due to a changed tax reporting rule, you will most likely receive an IRS Form 1099-K from your payment network—even if you haven’t received a 1099-K in the past. That’s because the 1099-K tax reporting rule now requires third-party payment networks to send a 1099-K if those payments exceed the $600 reporting threshold. (A higher, $20,000, threshold previously triggered the Form 1099-K.)
This “$600 rule” means that more people than in the past who have side hustles, and gigs, or part-time jobs, and businesses, and are paid through networks and apps like Venmo, Amazon, Square, and PayPal, will receive a 1099-K Form in January. But it’s important to note that the new reporting threshold doesn’t change the fact that the IRS has always required taxpayers to report all taxable income, whether they receive a 1099-K form or not.
However, since this is a key tax reporting change, it’s good to have information about what IRS Form 1099-K is, and what the new threshold could mean for you.
What is a 1099-K?
Form 1099-K is basically an IRS information reporting form. The form contains information, for your tax return, about the gross amount of payment transactions that you had on a third-party payment network when that amount exceeds $600 in the previous year. Companies that are required to send a 1099-K provide a copy to you, and to the IRS.
When you receive the Form 1099-K, you will want to make sure that it matches the information that you have in your records. If there are any problems with your 1099-K (e.g., the amounts listed don’t belong to you or other information on the form is incorrect), you should contact the third-party payment network that sent the form. They might be able to issue a corrected 1099-K.
1099-K Threshold for 2022: What Triggers a 1099-K?
Previously, to receive a 1099-K from a third-party payment network, you had to exceed $20,000 in transactions for goods and services and have more than 200 business transactions in a year.
Now, because of changes made under the American Rescue Plan Act, anyone with transactions that exceed a much lower $600 threshold amount (with no minimum number of transactions) in a year will likely receive a Form 1099-K from their third-party payment network. So, for example, under the changed rule, a single transaction for goods and services, that exceeds $600, could trigger the 1099-K.
Will You Get a 1099K From Venmo, PayPal, or Cash App?
Some people are wondering if they will receive a 1099-K from Venmo, or PayPal, because of the new $600 reporting threshold. The answer is maybe. Venmo, PayPal, Amazon, Square, Cash for Business through Cash App, and other third-party payment network providers, like Stripe, are required to report payments for goods and services to the IRS on Form 1099-K when those payments exceed the $600 threshold.
However, personal transactions (e.g., personal payments to friends and family) on the payment networks including Venmo, PayPal, etc., are not considered payments for goods and services. This is because the1099-K third-party payment network reporting rule applies to payments made for goods and services. It doesn’t apply to payments made through the payment networks that were gifts, or other personal payments of money to family and friends.
For example, if you received payment through a personal Cash App account during the year, those transactions won’t be reported on a 1099-K. That’s because that personal Cash App account is designed for noncommercial use, like sending a friend money because you’re splitting the cost of a meal. But if you have a Cash for Business account with Cash App(opens in new tab), and your transactions exceed the $600 tax reporting threshold, you will likely receive a 1099-K.
If, for some reason, personal transactions from any of the third-party payment providers get reported on your Form 1099-K, contact the payment network to see if you can get a corrected form. If you can’t get a correction, your own records should show personal payments made on the network versus payments for goods and services. Good records can help support the amount of income that you claim on your tax return.
Do You Have to Report a $600 Income?
The 1099-K reporting requirement means that the 1099-K Form will go to you and to the IRS. So, the likelihood that the IRS will notice a difference on your federal income tax return between your income reporting, and the reporting on your 1099-K form, (if there are differences) is relatively high.
Also, the IRS requires taxpayers to report all taxable income, so it’s best to report your taxable income and to keep good records that substantiate that income.
If you’re worried about tax liability from your side hustle, consider whether some tax deductions and credits might help reduce your tax bill, and double check other important tax changes for the 2022 tax year.
BY
If you are a Sex Worker Pay attention to this: If you receive gifts, tributes, or any other payments from any cash site like cashapp, Venmo, PayPal etc you will receive a 1099-K if you received more than $600. IRS gets a copy of this form too. Don’t ignore it. If you have questions contact us We can help.
IR-2022-189, Oct. 24, 2022
WASHINGTON — The Internal Revenue Service reminds taxpayers earning income from selling goods and/or providing services that they may receive Form 1099-K, Payment Card and Third-Party Network Transactions, for payment card transactions and third-party payment network transactions of more than $600 for the year.
There is no change to the taxability of income; the only change is to the reporting rules for Form 1099-K. As before, income, including from part-time work, side jobs or the sale of goods, is still taxable. Taxpayers must report all income on their tax return unless it is excluded by law, whether they receive a Form 1099-NEC, Nonemployee Compensation; Form 1099-K; or any other information return.
The IRS emphasizes that money received through third-party payment applications from friends and relatives as personal gifts or reimbursements for personal expenses is not taxable.
The American Rescue Plan Act of 2021 (ARPA) lowered the reporting threshold for third-party networks that process payments for those doing business. Prior to 2022, Form 1099-K was issued for third party payment network transactions only if the total number of transactions exceeded 200 for the year and the aggregate amount of these transactions exceeded $20,000. Now a single transaction exceeding $600 can trigger a 1099-K.
The lower information reporting threshold and the summary of income on Form 1099-K enables taxpayers to more easily track the amounts received.
Generally, greater income reporting accuracy by taxpayers also lowers the need and likelihood of later examination.
Consider making estimated tax payment
Income taxes must generally be paid as taxpayers earn or receive income throughout the year, either through withholding or estimated tax payments.
If the amount of income tax withheld from one’s salary or pension is not enough, or if they receive other types of income, such as interest, dividends, alimony, self-employment income, capital gains, prizes and awards, they may have to make estimated tax payments.
If they are in business for themselves, individuals generally need to make estimated tax payments. Estimated tax payments are used to pay not only income tax, but other taxes as well, such as self-employment tax and alternative minimum tax.
Taxpayers using a professional tax preparer should make sure they have all their information readily available before their appointment. Collecting their information and getting copies of any missing documents before taxpayers sit down to prepare their return is critical to filing an accurate tax return. Having organized records and information in hand helps prevent filing errors and will likely create a smoother filing experience.
Here’s a list of information taxpayers may need. Not all information applies to all taxpayers.
• Social Security numbers of everyone listed on the tax return.
• Bank account and routing numbers for direct deposit or information to make a tax payment.
• Forms W-2 from employer(s).
• Forms 1099 from banks, issuing agencies and other payers including unemployment compensation, dividends, distributions from a pension, annuity or retirement plan.
• Form 1099-K, 1099-MISC, W-2 or other income statement for workers in the gig economy.
• Form 1099-INT for interest received.
• Other income documents and records of virtual currency transactions.
• Form 1095-A, Health Insurance Marketplace Statement.
• Letter 6419, 2021 Total Advance Child Tax Credit Payments, to reconcile advance child tax credit payments.
• Letter 6475, Your 2021 Economic Impact Payment, to determine eligibility to claim the recovery rebate credit.
• Information to support claiming other credits or deductions, such as receipts for child or dependent care, college expenses or donations.
Taxpayers can get information about their Economic Impact Payments and advance child tax credit payments through their IRS online account.
Taxpayers who don’t have their letters about their Economic Impact Payment to claim missing stimulus payments and advance child tax credit payments to claim their full child tax credit have an online option. They can log in to their IRS online account and get the information from the Tax Records tab.
For taxpayers who are married filing jointly, each spouse will need to have their own Economic Impact Payment and advance child tax credit information.
What taxpayers should do if they’re missing other documents
Taxpayers who didn’t receive a W-2 or Form 1099 should contact the employer, payer or issuing agency and request the missing documents. This also applies for those who received an incorrect W-2 or Form 1099.
If they still can’t get the forms, they can use Form 4852, Substitute for Form W-2, Wage and Tax Statement or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. If a taxpayer doesn’t receive the missing or corrected form in time to file their tax return, they can estimate the wages or payments made to them, as well as any taxes withheld. They can use Form 4852 to report this information on their federal tax return.
Find an authorized e-file provider
Taxpayers who are looking for a tax pro should use the Authorized IRS e-file Provider locator service. This is a nationwide listing is of all businesses that have been accepted to participate in the IRS e-file program. These businesses are authorized IRS e-file providers. They are qualified to prepare, transmit and process e-filed returns.
There are steps people, including those who received stimulus payments or advance child tax credit payments, can take now to make sure their tax filing experience goes smoothly in 2022. They can start by visiting the Get Ready page on IRS.gov. Here are some other things they should do to prepare to file their tax return.
Gather and organize tax records
Organized tax records make preparing a complete and accurate tax return easier. They help avoid errors that lead to processing delays that slow refunds. Having all needed documents on hand before taxpayers prepare their return helps them file it completely and accurately. This includes:
• Forms W-2 from employers
• Forms 1099 from banks, issuing agencies and other payers including unemployment compensation, dividends, distributions from a pension, annuity or retirement plan
• Form 1099-K, 1099-MISC, W-2 or other income statement for workers in the gig economy
• Form 1099-INT for interest received
• Other income documents and records of virtual currency transactions
Taxpayers should also gather any documents from these types of earnings. People should keep copies of tax returns and all supporting documents for at least three years.
Income documents can help taxpayers determine if they’re eligible for deductions or credits. People who need to reconcile their advance payments of the child tax credit and premium tax credit will need their related 2021 information. Those who did not receive their full third Economic Impact Payments will need their third payment amounts to figure and claim the 2021 recovery rebate credit.
Taxpayers should also keep end of year documents including:
• Letter 6419, 2021 Total Advance Child Tax Credit Payments, to reconcile advance child tax credit payments
• Letter 6475, Your 2021 Economic Impact Payment, to determine eligibility to claim the recovery rebate credit
• Form 1095-A, Health Insurance Marketplace Statement, to reconcile advance premium tax credits for Marketplace coverage
Confirm mailing and email addresses and report name changes
To make sure forms make it to the them on time, taxpayers should confirm now that each employer, bank and other payer has their current mailing address or email address. People can report address changes by completing Form 8822, Change of Address and sending it to the IRS. Taxpayers should also notify the postal service to forward their mail by going online at USPS.com or their local post office. They should also notify the Social Security Administration of a legal name change.
View account information online
Individuals who have not set up an Online Account yet should do so soon. People who have already set up an Online Account should make sure they can still log in successfully. Taxpayers can use Online Account to securely access the latest available information about their federal tax account.
Review proper tax withholding and make adjustments if needed
Taxpayers may want to consider adjusting their withholding if they owed taxes or received a large refund in 2021. Changing withholding can help avoid a tax bill or let individuals keep more money each payday. Life changes – getting married or divorced, welcoming a child or taking on a second job – may also be reasons to change withholding. Taxpayers might think about completing a new Form W-4, Employee’s Withholding Certificate, each year and when personal or financial situations change.
People also need to consider estimated tax payments. Individuals who receive a substantial amount of non-wage income like self-employment income, investment income, taxable Social Security benefits and in some instances, pension and annuity income should make quarterly estimated tax payments. The last payment for 2021 is due on Jan. 18, 2022.
What this means to you is if you take tributes or any form of payment over $600 from PayPal, Cashapp, Zelle, or any other apps they will send you a 1099-K and IRS will get a copy too. Save this form for your taxes. IRS will cross reference it with the tax return that you file.
The American Rescue Plan Act of 2021 is intended to combat the economic and health impacts of the COVID-19 pandemic but within this $1.9 trillion stimulus package is a provision that will spell significant change for third-party settlement organizations and many gig workers.
The Act, which was signed into law March 2021, substantially reduces the reporting threshold associated with Form 1099-K from $20,000 in aggregate payments and 200 transactions to a threshold of $600 in aggregate payments, with no minimum transaction requirement. Form 1099-K is used to report payment card and third-party network transactions.
This change will become effective in 2022 and will impact the January 2023 filings.
Why the change? In short, the IRS is looking to reduce the tax gap through such measures as voluntary taxpayer compliance and information reporting. The tax gap is the difference between what taxpayers owe and what they pay timely.
The most recent IRS estimates of the tax gap relies on data from 2011 to 2013 and puts the average gross tax gap at $441 billion per year. Furthermore, a study by economists Natasha Sarin and Lawrence Summers projects that, between 2020 and 2029, the IRS will fail to collect nearly $7.5 trillion of taxes it is due.
Self-employment income is frequently underreported for income tax purposes, and, as noted by the Treasury Inspector General for Tax Administration (TIGTA), IRS tax gap studies estimate that when third parties do not provide information to the IRS, 63 percent of income is misreported. With the rise of the gig economy (think: Uber, Etsy, Lyft, etc.) in recent years, it is “likely that self-employment tax underreporting will continue to be a growing problem if not addressed,” the TIGTA stated.
“The purpose of lowering the threshold is to increase voluntary compliance. Tax gap studies through the years have consistently demonstrated that third-party reporting significantly raises voluntary compliance. So, by lowering the threshold, more transactions are now subject to reporting,” said Janice Krueger, subject matter expert for Greatland.
What it Means for Gig Workers
The change could be an unwelcome surprise for gig workers, especially if they haven’t been closely tracking their tax liability.
“The gig economy is a labor market based on temporary, flexible, freelance jobs where an individual earns income by providing on-demand services or goods. Income earned from the gig economy is taxable income whether a gig worker receives an information return or not. So, gig work is a certain activity a person does to earn income, often through an app or a digital platform,” said Krueger. “With the COVID-19 outbreak many individuals pursued other ways of earning income, especially if their current job was impacted by the pandemic.”
To further explain, consider the following example: Sally earns income as a driver through a ride-sharing platform. Currently, Sally would have to both earn at least $20,000 in payment for services and provide a minimum of 200 rides in a year before the online platform business, or third-party settlement organization (TPSO), would have an information reporting obligation. In such cases, the TPSO is required to send both Sally and the IRS a Form 1099-K listing the total amount of payments made during the year.
Effective in 2022, Sally would have to earn only $600 in payment for services, with no minimum of rides in a year, before the TPSO would have an information reporting obligation.
Under the new law, many more individuals will be receiving Form 1099-K reporting income from gig work, and accurately tracking and recording their tax liability (i.e., earned income and incurred expenses) will be especially important because it will need to be reported on their tax return.
“The Form 1099-K reports the gross amount of a reportable payment. It doesn’t include any adjustments for credits, cash equivalents, discounts, and so forth. The dollar amount of each transaction is determined on the date of the transaction,” added Krueger. “The other thing to note is if a gig worker is classified as an employee, for example, the individual will receive a W-2 from the employer. So, each of those gig workers needs to be classified first as whether they are an employee or an independent contractor.”
Impact on TPSOs
The change will have a major impact on TPSOs of goods and services. Not only does it significantly increase the number of Form 1099-Ks they will be required to file in a given year, but many will be required to take a closer look at their technology and processes to ensure compliance.
As explained by PwC, “The reduction in the reporting threshold will affect the onboarding practices of many TPSOs, specifically the process for collecting TINS [taxpayer identification numbers] that previously were based on higher thresholds. Failure to recognize the need for collecting TINs earlier in the TPSO relationship could expose organizations to excessive backup withholding obligations or liability if proper information is not obtained or the withholding is missed.”
Echoing the sentiment, Krueger said, “There’s going to be significantly more entities receiving 1099-K information. Third-party settlement organizations are going to be sending out many more 1099-Ks than they have in the past. So, it is important that when they onboard an entity, it should be a standard practice to obtain a taxpayer identification number upfront since this number is required to be reported on the 1099-K. If an entity provides incorrect taxpayer identification number information, then the third-party settlement organization would need to request correct information and to begin backup withholding if a correct TIN is not received.”
When a name and TIN combination doesn’t match the IRS database, it is the TPSO’s responsibility to then notify the entity via a B Notice (backup withholding notice). Unfortunately, rectifying the issue can prove time-consuming and frustrating for TPSOs. Furthermore, ignoring the mismatch can lead to penalties for the TPSO.
Take Action
Fortunately, there are steps that TPSOs can take to help ease the burden of ensuring compliance.
“It is essential to find a strategy that fully supports all reporting requirements and lessens the burden of annual wage and income reporting. Not only is it critical to find a 1099-K filing solution, but it’s also important find a W-2 and 1099-NEC solution in the event that workers are classified as employees or independent contractors not being paid by payment cards through a TPSO,” advised Krueger.
Implementing a comprehensive online 1099 and W-2 reporting platform, like Yearli.com by Greatland, can help TPSOs ensure they have access to a streamlined and compliant process for meeting all of these filing requirements.
It is important to note that, while the reduction of the reporting threshold associated with Form 1099-K is a federal threshold, there are Form 1099 filing requirements that vary by state and some states have already adopted a lower 1099-K threshold.
Yearli.com has a year-round compliance staff that remains in close contact with federal and state agencies to help ensure compliance at both the federal and state levels. It provides guidance to users on state reporting requirements and informs them of the best method to complete their filing obligations, as well as offers federal e-filing and a print and mail service for recipient copies.
Yearli.com also provides an automated TIN matching service, which can help TPSOs ensure that, when onboarding, names and TINs match the IRS database. Getting the name and TIN from an entity upfront and leveraging an automated TIN matching service is perhaps the best way for TPSOs to avoid backup withholding. Should a TPSO be subject to backup withholding, Yearli.com also supports the filing of Form 945 to the IRS.
The reduction of the reporting threshold associated with Form 1099-K will no doubt have a significant impact on the gig economy but, with the right tools and resources in place, TPSOs can alleviate the stress of ensuring compliance.