The IRS has recently postponed the $600 reporting requirement that was set to shake up the way certain income is reported in 2023. This postponement has likely left many taxpayers with 1099-K forms and a bundle of questions. We’re here to unravel this for you.

Decoding the 1099-K $600 Threshold

Under the American Rescue Plan Act, the IRS had planned to reduce the 1099-K reporting threshold from 200 transactions totaling over $20,000 per year, to any number of transactions that exceeded $600 in a year. This change was meant to be enforced from the beginning of 2022, with the first 1099-K filings under the new rule starting in January 2023. However, the IRS has put a pause on this new requirement, for now.

What’s the Impact?

The revised law wouldn’t have required reporting of personal transactions, such as splitting meal costs, giving gifts, or reimbursing someone for your share of a bill. However, it would significantly impact gig workers and those using third-party networks like Venmo, CashApp, Zelle, Etsy, and PayPal for business transactions.

Before the IRS decided to delay the enforcement, third-party settlement companies were gearing up to report and file Form 1099-K for all taxpayers receiving more than $600 in payments. But given the concerns about the new law’s implementation, the anticipated inundation of 1099-K forms, and potential confusion, the IRS has postponed the $600 threshold.

2023 Tax Season: What’s Different?

For the upcoming tax season in 2023, the existing threshold of $20,000 and 200 aggregate transactions remains in effect. However, it’s crucial to remember that this postponement is just that – a postponement. The year 2022 is being considered as a “transition period” to establish the right procedures for implementing the law.

For any business transactions in 2023 where you receive an aggregate payment of $600 through any third-party payment network, expect to receive a Form 1099-K for that income in January 2024.

Looking Ahead: The $600 Threshold in 2023 and Beyond

The IRS has stated that it will enforce the $600 aggregate payment threshold in years following 2022. However, there are ongoing discussions by various organizations and members of Congress to find a middle ground – possibly lowering the $20,000 threshold to a figure closer to $5,000 instead of the drastic drop to $600.

Rest assured, we will keep you informed about any changes. For this tax season, those who would have been affected by the new rule can breathe a sigh of relief and use this time to prepare for the potential changes next year.

Understanding the New Form 1099-K: A Guide for Small Business Owners

As a small business owner, staying updated with changes in tax regulations is crucial for the smooth operation of your business. Starting in the tax year 2023, the Internal Revenue Service (IRS) has made important changes to Form 1099-K that you should be aware of. 

Form 1099-K is a report of the payments you received throughout the year from two main sources:

1. Credit, debit, or stored value cards such as gift cards (payment cards).

2. Payment apps or online marketplaces (third-party payment networks such as CashApp, Venmo, PayPal, Zelle, and Etsy)

Money you received from friends and family as a gift or reimbursement of a personal expense should not be reported on a Form 1099-K. These payments aren’t considered taxable income.

Who gets Form 1099-K? 

If you’ve received any payments through payment cards or if you’ve received payments over $600 through a payment app or online marketplace, you should expect to receive Form 1099-K. This includes payments for goods you sell, services you provide, or property you rent through platforms such as:

– Peer-to-peer payment platform or digital wallet.

– Online marketplace (sale or resale of clothing, furniture, and other items).

– Craft or maker marketplace.

– Auction site.

– Car sharing or ride-hailing platform.

– Real estate marketplace.

– Ticket exchange or resale site.

– Crowdfunding platform.

– Freelance marketplace.

Important to note is the new $600 reporting threshold that started with tax year 2023. Payment apps and online marketplaces are required to file a Form 1099-K if the gross payments to you for goods and services are over $600. This reporting threshold was lowered from $20,000 and 200 transactions by the American Rescue Plan Act of 2021.

What to Do With Form 1099-K? 

You should review the information on the Form 1099-K to ensure its accuracy. The gross payment amount (Box 1a) on Form 1099-K reports the total payments you received. It doesn’t include adjustments for fees, credits, refunds, shipping, cash equivalents, or discounts. These items are not income, and you can deduct them from the gross amount. 

Comparing the gross payment amount to your records is a good practice to confirm the gross payment amount is accurate and to check the gross amount for expenses you can deduct.

With the changes to Form 1099-K, small business owners must be vigilant in keeping accurate records of their transactions, especially those over $600 on payment platforms and online marketplaces. By doing so, you will be better prepared to accurately report your taxable income when filing your taxes.

Remember, it’s always a good idea to consult with a tax professional or business advisor for personalized advice.