- December 5, 2022
Starting in 2022, the IRS is making many changes to Form 1099-K to enhance its efficiency and accuracy. The IRS has brought about a series of new updates to 1099-K reporting, which will remarkably impact the sellers. These changes are a component of the American Rescue Plan Act. These threshold changes will become effective in 2022.
Significant changes to Form 1099-K
Form 1099-K pertains to payment cards and third-party network transactions. This IRS information return Form is used to report certain payment transactions and to improve voluntary tax compliance. Taxpayers will receive Form 1099-K by January 31st; if they receive payments from,
- Payment card transactions include payments from debit cards, credit cards, and stored-value cards.
- Settlements from third-party payment network transactions above the minimum reporting threshold.
The IRS has made changes to these third-party payment transactions. For returns files for the calendar years before 2022, gross payments should exceed $20,000. And the tax Payer should have completed 200 such transactions. For returns for the calendar years after 2022, the gross payments should exceed $600, and there is no count on the number of transactions.
The IRS also reports that, for transactions made after March 11th, 2021, The American Rescue Plan Act clarified that the reporting of 1099-K by third-party organizations applied only for transactions for the provisions of goods and services settled through appropriate third-party payment networks.
How do the changes to Form 1099 K affects the gig economy?
Beginning in 2022, the new gross payment threshold is $600. Moving forward, this new update means that the taxpayer must file Form 1099-K and report the same to the IRS if the customer exceeds $600 a year. This is a big change from $20,000.
With the rise of the gig economy and self-employment trends, the workers who earned less than $20,000 a year didn’t receive 1099-K from the company. Some of them were misreporting their income and underreporting their earnings and savings. This altogether makes the tax information incorrect.
For a large organization that uses an online platform like PayPal and eBay and reaches the new $600 threshold, the payment company would send the 1099-K form for reporting. Companies should be very sure of their sales review and ensure they match their reporting. If you are unsure how the 1099-K threshold change impacts you, it is better to take help from a credible tax filing service provider like Tax2efile.
Taxpayers should check their payment card receipt records and merchant settlements to confirm that the amount they report in Form 1099-K is accurate. They should review their records appropriately to ensure that the gross receipts are accurate and are reported correctly in the income tax return. They should determine if they report all forms of payment received, including cash, checks, and debit/credit card payments. Tax2efile will help them in all these endeavors and helps them maintain appropriate documentation to support income and the deductions reported on the income tax returns.
Reference Link: IRS Form 1099-K
