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IRS Suspends New 1099-K Reporting Requirements

The American Rescue Plan Act of 2021 issued a new requirement for all online payment services like Paypal, Venmo, eBay and Etsy, to issue tax forms to individuals with transactions over $600.

In years past, Form 1099-K would only have been issued to individuals with more than 200 transactions and aggregated payments of $20,000 or more.

Now the IRS is backtracking on these requirements for the 2022 tax year. Doug O’Donnell, acting IRS commissioner, said this in a recent statement: “To help smooth the transition and ensure clarity for taxpayers, tax professionals and industry, the IRS will delay implementation of the 1099-K changes… The additional time will help reduce confusion during the upcoming 2023 tax filing season and provide more time for taxpayers to prepare and understand the new reporting requirements.”

Instead, online servicers can rely on the $20,000 threshold when determining who should receive form 1099-K.

What is the Form 1099-K used for?

Form 1099-K is an official tax document sent to both the taxpayer and the IRS from the payment service. Form 1099-K is meant to notify business owners and the IRS of any online payments received. This helps the IRS recognize if someone is grossly underreporting their income.

If someone accepts Venmo as payment for their business and receives $40,000 in income, the IRS wants to be aware of it. Unfortunately, the American Rescue Plan attempted to lower this threshold dramatically to only $600 or more in aggregate transactions.

While the reporting requirement is not in place this year, income from legitimate business transactions is still taxable, which means taxpayers must report it. The IRS delay only means activity through Paypal, Venmo, or similar accounts won’t generate a 2022 tax form at those low thresholds.

The biggest concern with the lower tax reporting threshold was the lack of information contained on the 1099-K. As you can see in the sample 1099-K below, there is no information to separate personal from business transactions. Instead, all that is listed is the number of transactions and proceeds received.

This means there is a significant risk in receiving a 1099-K that contains personal transactions, such as Venmo transactions between you and a friend splitting dinner, or for some items that you sold at a garage sale. Even worse, a 1099-K could be mixed between personal and business income, making record-keeping a nightmare for small businesses.

What to do if you receive a 1099-K Form

Even if you receive a 1099-K form, there is no reason to panic. Simply include this information in your tax documents that you send to Monotelo, and provide us with the summary of this income. If it’s all related to personal expenses, we will address that in your tax return.

To get started on your taxes, follow the link below.

This article is a general communication being provided for informational and educational purposes only and is not meant to be taken as tax advice, investment advice or a recommendation for any specific investment product or strategy. The information contained herein does not take your financial situation, investment objective or risk tolerance into consideration. Readers, including professionals, should under no circumstances rely upon this information as a substitute for their own research or for obtaining specific legal, accounting or tax advice from their own counsel. Any examples are hypothetical and for illustration purposes only. All investments involve risk and can lose value, the market value and income from investments may fluctuate in amounts greater than the market. All information discussed herein is current only as of the date of publication and is subject to change at any time without notice. Forecasts may not be realized due to a multitude of factors, including but not limited to, changes in economic conditions, corporate profitability, geopolitical conditions, inflation or US tax policy. This material has been obtained from sources believed to be reliable, but its accuracy, completeness and interpretation cannot be guaranteed. LEGAL, INVESTMENT AND TAX NOTICE. This information is not intended to be and should not be treated as legal, investment, accounting or tax advice. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Copyright 2023. Monotelo Advisors Inc. All Rights Reserved

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