Insights

Form 1099-K Updates

November 7, 2022

How many of you enjoy selling items on Facebook, sending payments using Venmo or PayPal, or use a Third-Party Network for business transactions? Some examples of Third-Party Networks are companies such as Zelle, PayPal, Square, Stripe, Venmo, and even Uber and Lyft. Earlier this summer, an article was posted to explain what Form 1099-K was and the changes made to the reporting threshold for 2022. This article is to discuss the stance of those changes and to keep taxpayers on the lookout for more updated information in the coming weeks.

Prior to 2022, the monetary threshold to receive a Form 1099-K was $20,000 with 200 sales related transactions. If both of these requirements were met, then a Form 1099-K would be issued and received by the taxpayer to report as income on their tax return.

2021 American Rescue Act

The 2021 American Rescue Act changed these requirements. The new threshold is $600 with no minimum number of transactions. This means that if you sell something on a platform, such as Facebook, for $600 or more, you will receive a Form 1099-K that needs to be reported as income on your 2022 tax return.

There are many possible complications that may arise with the increased number of forms the IRS will have to report and process. It will also lead to an increased number of individuals who don’t know how to report these forms or don’t need to. There is currently no way for the credits, discounts, fees, returns, or gifts to be excluded from the total amount listed on Form 1099-K. This could lead to individuals receiving forms stating incorrect amounts that need to be reported as income.

Taxpayers are hoping that lawmakers will suspend the change in the threshold after the midterm elections as part of an end-of-year tax extenders package or at least find some middle ground in between. An open letter was sent to congressional leaders by free market organizations, such as Americans for Tax Reform, the Center for a Free Economy, the American Business Defense Council, and the National Taxpayers Union to emphasize the urgency of the issue. Suspending the change will keep it at a threshold of $20,000 with 200 or more transactions.

Cut Red Tape for Online Sales Act

There was also a bill that was introduced in Congress on March 15^th, 2022, to raise the threshold from $600 to $5,000. This bill is called the Cut Red Tape for Online Sales Act. Many are worried that the low threshold of $600 will lead to overreporting of income and overpayment of taxes. This could render some taxpayer’s ineligible for certain tax benefits. It will also lead to increased reporting and will require additional collection of personal information that may lead to privacy concerns for online sellers. This bill would also provide relief for payments made during 2022 by extending the minimum threshold number of transactions back to 200 for one transitional year. It is unknown at this time if this bill will be passed or have an impact on the changes already made for the 2022 tax year.

Discussions are still being held about any changes that will be made before the tax season arrives. There is still time for congressional leaders to change their minds and either put the threshold back to where it was or meet in the middle with the Cut Red Tape for Online Sales Act. Below is a chart to help make it easier to understand what could possibly happen as decisions are still being made. Stay tuned for any changes to come to make sure you are prepared for this upcoming tax season.

	Threshold Limit	Number of Transactions
Original Threshold – 2020	$20,000	200+
American Rescue Plan Change – 2021	$600	0+
Cut Red Tape Proposed Change – 2022	$5,000	200+
Open Letter Request – 2022	$20,000	200+

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.