The IRS has reminded taxpayers who accept payments via payment cards and third-party network transactions that they may receive 1099-K forms for sales exceeding $600 in early 2023.
New 1099-K Reporting Rule:
According to the IRS, no changes to the taxability of income have been made, only to the reporting rules for Form 1099-K. Unless specifically exempted by law, taxpayers must continue to report all income on their tax returns. This is true whether they receive a Form 1099-NEC, Non-employee Compensation, Form 1099-K, or any other type of information return.
Previously, businesses would receive a 1099-K tax form if their gross payments for the year exceeded $20,000 and they had at least 200 transactions.
The gross payments threshold has been reduced to just over $600 for the year under the new 1099-K rule, with the transactions threshold no longer applicable. A single transaction in excess of $600 can now result in a 1099-K. Credit cards, debit cards, banks, PayPal, Uber, Lyft, and other third-party payment settlement entities are all included.
The 1099-K form includes, among other things, information about the payment processor and the company receiving payments, as well as a monthly breakdown of total payments.
The lower information reporting threshold and summary of income on Form 1099-K, according to the IRS, will make it easier for taxpayers to track the amounts received.
Personal Gifts and Reimbursements Are Excluded:
Additionally, taxpayers should avoid combining personal and business-related transactions in the same third-party payment service account. Money received as personal gifts or reimbursements for personal expenses from friends and relatives via third-party payment or applications such as PayPal or Venmo is not taxable.
The reporting threshold has been reduced to $600, with no minimum number of transactions, as part of the American Rescue Plan Act of 2021 (ARPA).
1099-K filing deadlines in 2023
- The deadline for recipient copies is January 31, 2023.
- The deadline for electronic filing is March 31, 2023.
- The deadline for paper submissions is February 28, 2023.
In addition to accepting tax returns via mail and tax preparers, the IRS provides free filing software through which taxpayers can file electronically. In fact, the IRS encourages e-filing because tax software calculates, flags common errors, and reduces tax return errors by alerting taxpayers to missing information.
Where Can I Get Tax Assistance?
If you are overwhelmed by the prospect of filing your own tax returns, you can seek the assistance of an accountant, bookkeeper, or tax preparation service to guide you through the process.
By outsourcing your small business tax preparation process, you allow others to assist you in filing tax forms and receiving tax advice from professionals who are knowledgeable about tax laws.