Have you been paid more than $600 in 2022 for goods or services through a third-party payment network like Venmo, PayPal, Amazon, or Square? Then, due to a changed reporting rule, you will most likely receive an IRS Form 1099-K from your payment network, even if you have not received a Form 1099-K in the past. Indeed, the 1099-K reporting rule now requires third-party payment networks to send a 1099-K if those payments exceed the $600 reporting threshold. (A higher threshold of $20,000 previously triggered Form 1099-K.)
This “$600 rule” means more people than in the past who have hustles, gigs, part-time jobs, and businesses, and are paid through networks and apps like Venmo, Amazon, Square, and PayPal, will receive a Form 1099-K in January. But it’s important to note that the new reporting threshold doesn’t change the fact that the IRS has always required taxpayers to report all of their taxable income, whether or not they receive a Form 1099-K.
But since this is a key change in tax reporting, it’s good to have some information on what IRS Form 1099-K is and what the new threshold might mean for you.
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What is a 1099-K?
Form 1099-K is essentially an IRS information reporting form. The form contains information about the gross amount of payment transactions you made on a third-party payment network when that amount exceeds $600 in the previous year. Companies that are required to send a 1099-K provide a copy to you and the IRS.
When will you receive a Form 1099-K? If you received more than $600 in payments for goods or services through third-party payment network transactions in 2022, you should receive a Form 1099-K by January 31, 2023.
When you receive Form 1099-K, you should make sure it matches the information you have on file. If there is a problem with your 1099-K (for example, the amounts listed do not belong to you or other information on the form is incorrect), you should contact the third-party payment network that submitted the form. They might be able to issue a corrected 1099-K.
1099-K threshold for 2022: what triggers a 1099-K?
Previously, to receive a 1099-K from a third-party payment network, you had to exceed $20,000 in goods and services transactions and have more than 200 business transactions per year.
Now, due to changes made under the American Rescue Plan Act, anyone with transactions over a much lower threshold of $600 (with no minimum number of transactions) in a year will likely receive a Form 1099-K of its third-party payment network. . So, for example, under the amended rule, a single goods and services transaction, which exceeds $600, could trigger the 1099-K.
As a result, many people who have not received 1099-Ks in the past will receive them in January.
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Will you get a 1099K from Venmo, PayPal or Cash App?
Some people wonder if they will receive a 1099-K from Venmo or PayPal, due to the new $600 reporting threshold. The answer is maybe. Venmo, PayPal, Amazon, Square, Cash for Business via Cash App, and other third-party payment network providers, such as Stripe, are required to report payments for goods and services to the IRS on Form 1099-K when such payments exceed $600. threshold.
However, personal transactions (eg, personal payments to friends and family) on payment networks, including Venmo, PayPal, etc., are not considered payments for goods and services. This is because the third-party payment network reporting rule 1099-K applies to payments made for goods and services. This does not apply to payments made through payment networks that were gifts or other personal cash payments to family and friends.
For example, if you received payment through a personal Cash App account during the year, those transactions will not be reported on a 1099-K. That’s because this Personal Cash App Account is designed for non-business use, like sending money to a friend because you’re sharing the cost of a meal. But if you have a Cash for Business account with Cash App (opens in a new tab)and your transactions exceed the $600 reporting threshold, you will likely receive a 1099-K.
If, for any reason, personal transactions from one of the third-party payment providers are reported on your Form 1099-K, contact the payment network to see if you can get a corrected form. If you cannot obtain a correction, your own records should show personal payments made on the network versus payments for goods and services. Good records can help substantiate the amount of income you report on your tax return.
Do you have to report income of $600?
The 1099-K reporting requirement means that the 1099-K form will go to you and the IRS. So the likelihood of the IRS noticing a discrepancy on your federal tax return between your tax return and the return on your Form 1099-K (if there are differences) is relatively high.
Also, the IRS requires taxpayers to report all of their taxable income, so it’s best to report your taxable income and keep good records that substantiate that income.
If you’re worried about tax liability on your end, consider whether certain deductions and tax credits could help lower your tax bill, and check other important tax changes for the tax year 2022.
