Sellers and Accountants Applaud Delayed 1099-K Reporting

Hapabapa/iStock/Getty Images

A required 1099-K form for services from third-party payment networks has been delayed. A 1099-K will not have to be issued for services over $600. Although there is a top number where they will be issued, in tax year 2022, the lower threshold will not count.

Many people, like freelancers and online sellers, use third-party payment networks to collect their funds. But how will current tax laws and next year’s tax laws affect how they file?

Third-Party Payment Sales Threshold for 1099-K

Third-party payment networks are services like PayPal, Amazon, Square, and Venmo. They are often used to pay people for services or products.

In the past, these payment networks were required to issue Form 1099-K when a user received more than $20,000 in gross sales from goods and services transactions in one tax year. They also must have had more than 200 goods and services transactions in the same year.

And in sending the 1099-K, these payment networks are required to report the individual’s income to the Internal Revenue Service.

American Rescue Plan Changes Threshold

The American Rescue Plan changed the threshold required to receive Form 1099-K. Instead of $20,000, the new threshold became $600. In other words, these payment networks were required to send a 1099-K to a user receiving payments over $600 in one tax year.

That meant that many people who had never received a 1099-K were about to be sent one.

IRS Delays $600 Threshold Until 2023

But the IRS postponed the new rule from taking effect for the tax year 2022. The rule will now be enforced for the tax year 2023. The reason for the postponement was an outcry from both the public and accountants.

There were serious concerns and confusion regarding this new rule, and there was little guidance by the IRS available. It also puts a significant burden on the payment networks to comply.

There was also confusion from numerous people on how to report payments from the 1099-K on their income tax returns. Most of these individuals had never had to do this.

In a statement, IRS acting commissioner Doug O’Donnell said, “To help smooth the transition and ensure clarity for taxpayers, tax professionals, and industry, the IRS will delay implementation of the 1099-K changes.” He went on to say that the additional time would help taxpayers and accountants prepare and understand the new reporting requirements.

Concerns of Lower Threshold Expressed

There was an outcry concerning the lower threshold. The IRS, the Office of Tax Policy, and the Department of the Treasury received calls and letters from the public. Congress also expressed concern.

This resulted from the American Institute of Certified Public Accountants (AICPA) sharing a letter to Congress expressing “deep concerns” about the threshold to the Senate Finance Committee and the House Ways and Means Committee.

The letter went on to say that the National Taxpayers Union Foundation had the AICPA’s support in recommending a “a level sufficient to exempt casual or low level online activity.” The suggestion was instituting a $5,000 threshold instead of the $600.

The delay creates a transition period for both users and accountants. And this will give the IRS a chance to share information with taxpayers so they can comply with the new rule.

Fear of Personal Use Given 1099-K

The lower threshold could cause a problem for those using third-party payment systems for personal use. Although the new rule is geared toward freelancers and small-business owners who receive payment from a client, others could be inadvertently served a 1099-K.

Parents will use Venmo or use PayPal to send money to children, or an individual could reimburse another individual.

For example, you pay for your friend’s meal. Later they reimburse you through Venmo. The friend will have to remember to designate it as personal. If this happens often and the friend neglects to classify it correctly, it could trigger a 1099-K. The same goes if you loan a friend money, and they pay you back through a third-party network. If it’s more than $600 and not noted correctly, it could be reported to the IRS.

And since the transaction is reported to the IRS, if you don’t claim it as income on your income tax return, it won’t match what the IRS has recorded. This could lead to problems.

Income Still Taxed

Regardless of whether you’re issued a 1099-K for business transactions, the IRS reminds taxpayers that they are still responsible for declaring all income they receive. Taxpayers should track their sources of income and report it according to the IRS.

$600 for Form 1099-K Delayed

The threshold for doing business online and receiving a 1099-K through third-party networks will ultimately be lowered to $600 in the tax year 2023. But for the 2022 tax year, the threshold of $20,000 still prevails.

The public and advocacy groups say the $600 rule for receiving a 1099-K is too low and suggest a higher amount. The AICPA proposed even $5,000 would be progress.

The Epoch Times Copyright © 2022 The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.