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: gig
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.
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