Many of you that have been following the 1099-K changes are probably getting tired of hearing and seeing articles on it. The 2021 American Rescue Act was supposed to adjust the reporting requirements for the Form 1099-K. It would change the dollar threshold for third-party networks and payment cards from $20,000 to $600 while eliminating the 200-transaction threshold. This means that anyone who received $600 or more, even with just one transaction, would be receiving a Form 1099-K in the mail for 2023.
Since these changes were still up in the air and nothing was officially decided, the 2022 tax reporting year stayed the same as previous years as to not cause more confusion and disruptions. This was noted in IRS Notice 2023-10.
While the changes are still being discussed, it is believed that the $600 threshold will remain and start in 2023 which means the time to plan is now. For those who use third-party apps, such as Cash App, Zelle, Venmo, PayPal, Stripe and so on, you will likely be the recipient of a new tax form (1099-K) which will be required to be included in your 2023 tax return filing.
|Tax Year||Year Form Available||Federal Reporting Threshold|
|2022||2022||More than $20,000 gross sales from goods or services AND more than 200 transactions in the calendar year.|
|2023||2023||$600 or more in gross sales from goods or services in the calendar year.|
Third-Party Payment Apps
Below we’ve reviewed a couple of the widely used apps and their current IRS reporting structures.
Zelle does not report any transactions to the IRS that are processed through their network, even if the total is more than $600. The law requiring certain payment networks to provide Forms 1099-K does not apply to the Zelle Network. Any payments received that are taxable is the payor’s responsibility to report them to the IRS. They do not issue 1099-Ks themselves.
Paypal and Venmo offer the ability to “tag” your payments as goods and services or personal as personal. This should help allow accurate reporting of goods and service only amounts on Form 1099-K.
If you are signed up with a business account using any of the following third-party payment networks or platforms: Venmo, PayPal, Amazon, Square, Cash App, Etsy or StubHub, eclipsing the $600 threshold means you should be on the lookout for your 1099-K. It’s important to work with your accountant to ensure you’re reporting gross income received and can represent revenue accurately. Many of these apps also have personal account options. If you’re not planning to conduct business, you may opt to use the platform for peer-to-peer transactions, such as meals or reimbursements.
Receiving a 1099-K in Error
If you believe the information on your Form 1099-K is incorrect or it was issued in error there are a few options that you can take. You can contact the filer, whose name and contact information should appear in the upper left corner on the front of the form. You could also try and contact the payment settlement entity, whose name and phone number should be shown in the lower left side of the form, to assist with providing a corrected form. Finally, if you find yourself with a Form 1099-K for next tax season for personal items sold and are not sure where to go, please reach out to an accounting professional on the best way to handle this and correct it on your tax return.
If you would like to talk to one of our professionals in our Entrepreneurial Support & Client Accounting Segment on this topic or any other business-related topic, please do not hesitate to contact us.