IRS 1099-K Form: When You Might Get One From Venmo, PayPal, or Cash App
The IRS 1099-K new $600 reporting threshold involving payment networks like Venmo, PayPal, Amazon, Square, and Cash App will apply for 2023.
IRS Form 1099-K has been causing a lot of confusion lately. That's in part because if you were paid more than $600 during 2022 for goods or services through a third-party payment network like Venmo, PayPal, Amazon, or Square, then due to a changed tax reporting rule, you were supposed to receive an IRS Form 1099-K from your payment network early this year— even if you had never received a 1099-K in the past. That’s because the 1099-K tax reporting rule required third-party payment networks to send a 1099-K if those payments exceeded a new $600 reporting threshold.
But just before the end of 2022, the IRS delayed the implementation of the so-called $600 rule. The rule delay came after lawmakers and advocacy groups expressed concern that millions of taxpayers would unexpectedly receive 1099-K forms and that some businesses and the IRS might not have been prepared for the onslaught of new reporting.
What does this mean for you if you are paid for goods and services through a third-party payment network? For now, the delay of the $600 threshold means that for your 2022 tax return, the former, higher $20,000/200 transaction threshold will apply for goods and services that you received payment for through third-party payment networks during 2022. In other words, if your 2022 transactions meet the higher threshold, you should generally expect to receive a 1099-K form before your file your return.
But, the delay also means that the $600 rule is expected to apply for 2023. So, more people than in the past who have side hustles, and gigs, or part-time jobs, and businesses, and are paid through a wide-range of networks and apps like Venmo, Amazon, Square, and PayPal, (to name just a few), will eventually receive a 1099-K Form. (Although, It’s also important to note that a new reporting threshold doesn’t change the fact that the IRS has always required taxpayers to report all taxable income, whether they receive a 1099-K form or not.)
So, since the $600 rule is a key tax reporting change that will likely come around again for payments you receive during 2023, it’s good to have information about what IRS Form 1099-K is, and what a lower $600 threshold could mean for you going forward.
What is a 1099-K Form Used For?
Form 1099-K is basically an IRS information reporting form. The form contains information, for your tax return, about the gross amount of payment transactions that you had on a third-party payment network when that amount exceeds $20,000 in the previous year. Companies that are required to send a 1099-K provide a copy to you, and to the IRS.
Tax Season is Here. What to Know Before You File
When will you receive a Form 1099-K? Generally, if you received more than $20,000 in payments for goods or services through third-party payment network transactions in 2022, you should expect to receive a Form 1099-K in late January or early February of this year. The $600 reporting threshold has been delayed, so that it applies for transactions that occur in 2023, not in 2022.
If you receive a Form 1099-K, you will want to make sure that it matches the information that you have in your records.
If there are any problems with your 1099-K (e.g., the amounts listed don’t belong to you or other information on the form is incorrect), you should contact the third-party payment network that sent the form. They might be able to issue a corrected
1099-K.
IRS $600 Rule for 2023
Previously, to receive a 1099-K from a third-party payment network, you had to exceed $20,000 in transactions for goods and services and have more than 200 business transactions in a year. So, for the 2022 tax year, that $20,000/200 transaction threshold applies. That's because the IRS delayed the new $600 threshold for one year.
That lower $600 threshold was originally scheduled to go into effect for the 2022 tax year, so that millions of people who hadn't received a 1099-K in the past would have received one.
But for transactions that occur during 2023, the lower $600 threshold is expected to apply. So a lot more people will receive 1099-Ks in early 2024 when they're ready to file their 2023 tax returns.
Will You Get a 1099K From Venmo, PayPal, or Cash App?
Some people are wondering if they will receive a 1099-K from Venmo, or PayPal for the 2022 tax year. The answer is maybe. Yes, the IRS delayed the $600 rule tor the 2022 tax year, so not as many people received a 1099-K for this filing season. But Venmo, PayPal, Amazon, Square, Cash for Business through Cash App, and other third-party payment network providers, like Stripe, are still required to report payments for goods and services to the IRS on Form 1099-K when those payments exceed the previous $20,000/200 transaction threshold. So if you exceeded those amounts, you should have received a 1099-K.
Businesses that are required to report your income over $20,000 also include popular sites like Etsy, StubHub, Depop, Poshmark, etc. If you're unsure about whether you will receive a 1099-k, most of these sites have questions and answers on their websites that can help.
Keep in mind, however, that personal transactions (e.g., personal payments to friends and family) on the payment networks including Venmo, PayPal, etc., are not considered "payments for goods and services." That's important because the1099-K third-party payment network reporting rule applies to payments made for goods and services. It doesn't apply to payments made through the payment networks that were gifts, or other personal payments of money to family and friends.
For example, if you received payment through a personal Cash App account during the year, those transactions won’t be reported on a 1099-K. In this example, that personal Cash App account is designed for noncommercial use, like sending a friend money because you’re splitting the cost of a meal. But if you have a Cash for Business account with Cash App
(opens in new tab), and your transactions exceed the $20,000/200 transaction tax reporting threshold for 2022, you will likely receive a 1099-K.
Could the Earned Income Tax Credit Help You?
If, for some reason, personal transactions from any of the third-party payment providers get reported on your Form 1099-K, contact the payment network to see if you can get a corrected form.
If you can’t get a correction, your own records should show personal payments made on the network versus payments for goods and services. Good records can help support the amount of income that you claim on your tax return.
IRS 1099-K: Do You Have to Report a $600 Income?
The IRS delayed the $600 threshold reporting requirement for the 1099-K for 2022. But normally, any 1099-K Form will go to you and to the IRS. So, the likelihood that the IRS will notice a difference on your federal income tax return between your income reporting, and the reporting on your 1099-K form, (if there are differences) is relatively high. But keep in mind that the $600 reporting requirement is expected to apply for transactions during 2023. So unless something changes, you should plan on working with the $600 rule when you file your 2023 tax return.
Also, the IRS requires taxpayers to report all taxable income, so it’s best to report your taxable income and to keep good records that substantiate that income.
If you’re worried about tax liability from your side hustle, consider whether some tax deductions and credits for the self-employed might help reduce your tax bill, and double check other important tax changes for the 2022 tax year.
This article, written by Kelley R. Taylor, appeared first on Kiplinger.
