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IRS Sex workers taxes

IRS Form 1099-K: Will You Get One From Venmo, PayPal, or Cash App?

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 KELLEY R. TAYLOR
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Sex workers

Reminder: Service providers, others may receive 1099-Ks for sales over $600 in early 2023

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.

Categories
IRS Sex workers taxes

Changes in 1099-K Threshold: What it Means for the Gig Economy

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.