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1099-K

IRS Announces Form 1099-K Reporting Threshold Delay

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In a recent development, the IRS has announced a delay in reporting thresholds for third-party payment organizations, impacting the tax year 2023. Third-party payment organizations include many popular payment apps and online marketplaces. This delay relieves popular platforms such as PayPal, Venmo, Etsy, eBay, and Amazon from the obligation to report tax year 2023 transactions on a Form 1099-K to the IRS or the payee for the lower threshold amount of $600. Current 1099-K Reporting Thresholds for Tax Year 2023 As a consequence of this delay, the existing 1099-K reporting threshold of an aggregate of more than $20,000 in payments from over 200 transactions will persist for tax year 2023. The IRS has outlined that calendar year 2023 will serve as a transition period for the lowered threshold reporting. Further planning includes a proposed $5,000 threshold for tax year 2024, as part of the phase-in to implement the $600 threshold enacted under the American Rescue Plan. The transition period is designed to ensure an orderly shift for third-party organization tax compliance and individual payee compliance with income tax reporting.  The IRS, recognizing the potential confusion arising from these changes, is working swiftly to provide instructions and clarity for taxpayers who may have already received a 1099-K. Updates and guidance are expected in the near future, and taxpayers are encouraged to check the IRS website or follow eFile360 for the latest information. Understanding the 1099-K Form and Reporting Thresholds Credit card companies and third-party processors play a crucial role in facilitating transactions for retailers, and in accordance with IRS regulations, they are mandated to report these transactions. This reporting is done through the submission of a 1099-K form to the IRS, with a corresponding copy sent to the merchant or small business. For payment card transactions, credit card companies are obligated to file a 1099-K …

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How The Relationship Between Form 1099-K & Online Transactions Has Changed

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The IRS has recently updated the Form 1099-K guidelines. Here’s what you need to know about how this will affect your online transactions and beyond. 1099-K Changes & How They Affect Everyone Much of the conversation that has been circulating about the new 1099-K thresholds for third-party and online transactions has focused on the impact on the smallest of small businesses. Previously, side hustles and other micro-business ventures were not getting anywhere close to the old $20,000-and-200-transaction minimum used to determine who got these forms and who didn’t. As we’ve mentioned before, the threshold is now set at just $600 – so if any third-party or online transaction (related to business, not personal exchanges) totals reach more than that, the recipient of those funds will need to also get a 1099-K to file with their taxes. These new thresholds are going to generate a tidal wave of new 1099-K filings come tax season 2023. While personal payments don’t count towards these thresholds, we can expect some issues to arise, as freelancers, entrepreneurs, friends, family, and corporate accounts are all coalescing within these apps to pay for everything from your portion of the brunch bill to a company retreat or contractor fees. Who Is Responsible for Filing 1099-K? There is also a bit of confusion about which entities and individuals will have to prepare and file all of these new 1099-K forms. You can rest a little easier knowing that your business (or your personal tax preparer) isn’t responsible for generating these forms. The entities that facilitated the online transactions (or third-party settlement organizations like Venmo, Paypal, etc.) are the ones who must send them to the payee, which is the business or individual that received the funds. Because this is going to be a new and greatly expanded process for these entities, it’s even more important that you and your accounting or tax professionals look over these forms carefully. There …

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1099-MISC, 1099-NEC, 1099-K: What’s the Difference?

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The introduction of the 1099-NEC in 2020 has many businesses still stumped about which to file: 1099-MISC, 1099-NEC, or 1099-K. Let’s break them down here quickly. Because there are more than 40 different information returns that businesses and individuals are filing any given year, it’s easy to get lost in them. Each one has been described in detail by the IRS, but that doesn’t mean there won’t be specific cases where you are unsure if someone who did work for you is considered an independent contractor or not, or whether your last Venmo payment to a contractor puts you over the threshold that then requires an information return be filed. Rest assured, eFile360 is here to help. 1099-MISC The Form 1099-MISC is the one you’ll use to report miscellaneous payments you’ve made throughout the year. These miscellaneous payments include, according to the IRS, any of the following that totaled at least $600: Rents Prizes and award Other income payments that don’t include non-employee payments (those are filed on the 1099-NEC, see below) Medical and healthcare payments Proceeds from crop insurance Cash payments for fish and other aquatic life purchased from anyone in the trade or business of catching fish Cash paid from notional principal contract to an individual, partnership, or estate Payments to an attorney Fishing boat proceeds The term “miscellaneous” accurately describes the different payment types and descriptions captured here, and previously was used to report the non-employee payments made to independent contractors, but that is now reported on the newly reinstated 1099-NEC. Because the 1099-MISC is responsible for reporting so many different things, it’s important to know when and if your payments fall in these categories, as there are penalties for incorrect filings. 1099-K 2022 has been a hot year for 1099-K changes. Many tax, business, and payment industry gurus are weighing in on the latest changes and how they …

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New 1099-K Rules Will Begin in 2022

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We mentioned in this eFile360 article that the 1099-K threshold is changing in 2022, now we want to dive into the details and talk about what that change means for individuals and businesses. Here’s the latest news on the new 1099-K rules. 1099-K Rules: New Threshold Starting in the tax year 2022. The new 1099-K rules include a much lower threshold at which third-party payment entities will have to prepare and send out a Form 1099-K. These third-party or “payment settlement entities” include businesses like banks and any other organization that processes credit card transactions on the behalf of another merchant and then makes interbank transfers of funds from a customer to the merchant. This also includes third-party payment apps like PayPal, Venmo, Zelle, CashApp, Uber, and more. Previously, the threshold required these entities to only send out a Form 1099-K if they handled more than 200 transactions during the calendar year with a total gross amount of more than $20,000. But now, a section in the American Rescue Plan Act (ARPA) has amended these thresholds to $600 and no minimum transaction number, respectively. That means there will be a huge uptick in the number of 1099-K forms that these entities will be responsible for. Exceptions to the New 1099-K Threshold It’s important to note, however, that these transactions only count toward the new 1099-K threshold if they are “reportable third-party network transactions.” These reportable transactions include payments made for goods and services, not those made as personal gifts or reimbursements. So, if you own a coffee shop and your customers pay through a third-party entity, those transactions (after the $600 threshold) will need to be included on your Form 1099-K, but that money you sent to your friend because they paid your half of the dinner tab last week is not reportable. Cautions & Criticisms It’s worth noting that if you or others in your life often use these third-party …

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Early Changes for the 2022 Tax Year

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It’s been a month since tax season ended. Let’s start preparing for tax season 2023 by looking at the early tax changes for the tax year 2022. Here are the changes that have been announced so far. Tax Programs Expiring in 2022 There are many tax programs that were created or changed to combat the effects of the coronavirus pandemic and ran through the tax year 2021, but many of them have expired. Here’s a short list: Child Tax Credit – drops back to $2,000 per child (in 2021, it was $3,000 for 6- to 17-year-old children and $3,600 for children 5 and younger Child & dependent care credit – percentage dropped from 50% to 35% maximum and is now non-refundable Earned Income Tax Credit (EITC) – minimum age jumps back up from 19 to 25, and the maximum age limit (65) has been re-applied, with other considerations in the EITC adjusted for inflation Recovery Rebate Credit – since there will be no stimulus payments in 2022, taxpayers can’t claim any payments not received Charitable Gift Deductions – the above-the-line deductions for up to $300 in cash contributions ($600 for married filing jointly) expired, and only people who claimed a standard deduction are eligible for this There are also several “tax extenders” that haven’t been extended yet. These are tax breaks that are often scheduled to expire, but they keep getting renewed, including deduction for mortgage insurance premiums nonbusiness energy property credits fuel cell motor vehicle credit alternative fuel vehicle refueling property credit two-wheeled plug-in electric vehicle credit Increases in Tax Programs There are also several increases to be seen in the 2023 tax season and tax year 2022. The standard deduction has risen for all filing statuses (between $400 and $800 per status). HSA (health savings account) contribution limits have increased by $50-100. FSA (flexible spending account) limits have risen by $100. Estate tax exemption limits have risen …

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Latest Updates for 2022 Tax Season & Beyond

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You made it! 2021 has ended and it’s time to start looking ahead to the 2022 tax season. Here are the latest updates. Tax Deadlines There are lots of tax deadlines that have already lapsed as 2021 drew to a close, and there are lots more just around the corner. Social Security, Medicare, and withheld income tax are all due on January 18. And January 31 is the deadline to send out forms 1099-NEC. Tax Day this year is still set for April 15, 2022, but that is still subject to change should any new developments in the coronavirus pandemic take place. If you are hoping to get an extension, Form 4868 needs to be filed before April 15, and your tax due date will be pushed back to October 15, 2022. Kentucky taxpayers should also be aware of a recent deadline change in light of the tornadoes that struck certain areas in the state. Victims of the December 10 disasters will have until May 16, 2022, to file individual and business tax returns. ACA Updates ACA Open Enrollment runs from November 1, 2021, to January 15, 2022, so you still have time to enroll or change your marketplace coverage for 2022. There are also new opportunities – like zero-premium plans – for individuals with extremely low-income levels. For more on the ACA changes for 2022, see our previous blog article. 1099-K Updates There are also some changes to 1099-K reporting coming in 2022. If your business or solopreneur gig includes selling products or services on sites like Etsy, eBay, or even Uber, you’ll need to fill out the 1099-K. Right now, online sellers only get these forms if they had 200 or more transactions with a combined $20,000 or more. Starting in the tax year 2022, sellers who have sales totaling $600 or more will be issued this tax form. Inflation Inflation has been a hot topic this year, with rates rising 6.8% in 2021 – the highest jump since 1982. Before these spikes, the IRS had already determined the inflation adjustment rates for tax year 2021 in October 2020. And …

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