There has been a lot of talk about changes in Form 1099 reporting for 2022 that might result in you getting a Form 1099-K to report certain payments that you receive. This will affect many who are in the Gig economy.
Let’s start with what is a Form 1099-K?
- Like many businesses, if you accept credit cards or use a third party service to transfer money personally, you may receive a Form 1099-K to remind you and to let the IRS know how much you received. This amount, in many cases, needs to be reported on your tax return.
Who sends out the Form 1099-K and how do they know that it needs to be sent?
- These forms are sent out by the vendor that you use to accept credit cards. But they are also be sent from some of the payment apps such as Venmo, PayPal and Cash App.
- Beginning for the 2022 year, a Form 1099-K will be sent out if the aggregate amount of payments received for goods and services exceed $600 for the calendar year.
Why has this not been a big deal in the past?
- Prior to 2022, the thresholds for filing the form were much higher.
- The prior limits were $20,000 in payments and over 200 transactions.
- So not many individuals met these limits.
Will the Form 1099-K include all payments received? I know a lot of people who just transfer money back and forth, but they really are not selling anything.
- Good question. The way it is supposed to work is that only payments received for goods and services will be included.
- Any personal transfers of funds between people should not be included.
- With this being the first year, I am sure there is going to be some errors.
How would someone fix those errors?
- That will be the million dollar question. The IRS wants you to contact the third party and have them reissue the form to correct the error, but I can see these large third-party services not doing it as it could be an administrative headache for them.
- I would work with your tax preparer to come up with a plan for any errant amounts.
So now the Form 1099-K amounts need to reported on a tax return, right?
- That is correct, but it may not be easy in some cases, since there are a number of places on a return where this income should be reported.
- It would go on a Schedule C if it is business income.
- It would go on a rental schedule if a tenant paid rent.
- It would go on Schedule D if you were selling a personal item at a gain (which you have to report).
- It may not go anywhere if you sell a personal item at a loss (you have to included gains, but you do not get to deduct personal losses).
- But if you don’t report the losses, then the Form 1099-K may be higher than what you report on your return and it will no longer match the IRS records and in some cases they may send you a matching notice.
- So as you can see there is a lot of moving parts
Be sure to talk to one of our professionals if you have any questions regarding Form 1099-K.
As a partner, I have thorough experience providing tax services to individuals, privately held businesses, nonprofit entities and estates and trusts. I also provide compilation and review services.
