The IRS on Tuesday shared tips for the upcoming tax season — including a reminder about the new $600 limit for receiving Form 1099-K for third-party payments.
The change applies to payments from third-party networks, such as Venmo or PayPal, for transactions such as part-time work, side jobs or selling goods, the IRS said.
Prior to 2022, the federal reporting limit for Form 1099-K was for taxpayers with more than 200 transactions totaling more than $20,000. However, Congress lowered the threshold as part of the American Rescue Plan Act of 2021, and a single transaction of more than $600 can now activate the form.
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“It’s going to be a new look for a lot of people,” said Adam Markowitz, an enrolled agent and vice president at Howard L. Markowitz PA, CPA, Windermere, Florida. “And the worst thing they can do is ignore it.”
Who can receive Form 1099-K for 2022
Businesses file Form 1099-K, known as an “information return,” annually to report credit card and third-party payments, with a copy sent to the taxpayer and the IRS.
Business income on your return should include what is reported on Form 1099-K, said Tommy Lucas, a certified financial planner and enrolled agent with Moisand Fitzgerald Tamayo in Orlando, Florida. Otherwise, you could trigger an automatic IRS notification or even an audit, he said.
The challenge with the new $600 lower limit amount for Form 1099-K is that personal payments and allowances can be misreported as taxable transactions.
National Director of Wealth Planning at Evercore Wealth Management
You may receive a Form 1099-K for a transaction you didn’t expect, such as reselling Taylor Swift tickets for a profit, says Justin, national director of wealth planning at Evercore Wealth Management in San Francisco. Miller warned.
But selling used furniture at a loss, for example, is perhaps less obvious.
Markowitz said, “Obviously if you sell a $2,000 couch for $1,000, there’s no taxable transaction there.” “You don’t get any capital loss for it and you don’t get any profit for it.”
What happens if you accidentally get a 1099-k
While the purpose of the amendment is to collect income taxes, not individual transactions, experts say it’s possible that some filers may receive Form 1099-K by mistake.
“The challenge with the new $600 threshold for Form 1099-K is that personal payments and refunds can be falsely reported as taxable transactions,” Miller said.
The IRS’s FAQ page states that you should not receive Form 1099-K for personal transfers, such as reimbursements for meals, gifts, or perks.
However, if you received the form for a personal transaction, the agency asks that you contact the publisher for correction. If the company doesn’t correct the error, the IRS says you can add a statement to your tax return that you reported your income correctly.