Wed. Nov 30th, 2022

The IRS on Tuesday shared tips for the upcoming tax season — including a reminder about the new $600 threshold 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, according to the IRS.

Before 2022, the federal Form 1099-K reporting threshold was for taxpayers with more than 200 transactions worth an aggregate above $20,000. However, Congress slashed the limit as part of the American Rescue Plan Act of 2021, and a single transaction over $600 may now trigger the form.

Aimed at closing the tax gap — a top priority of the Biden administration — the provision is estimated to bring in $8.4 billion from the fiscal year 2021 to 2031, according to the Joint Committee on Taxation.  

“It’s going to be a new form for a lot of people,” said Adam Markowitz, an enrolled agent and vice president at Howard L Markowitz PA, CPA in Windermere, Florida. “And the worst thing they can do is ignore it.”

Who may receive Form 1099-K for 2022

Companies file Form 1099-K, known as an “information return,” annually to report credit card and third-party payments, with a copy going to taxpayers and the IRS. 

Tommy Lucas, a certified financial planner and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida, said the business income on your return must include what’s reported on Form 1099-K. Otherwise, you may trigger an automatic IRS notice or even an audit, he said. The challenge with the new lower threshold amount of $600 for Form 1099-K is that personal payments and reimbursements could be incorrectly reported as taxable transactions. Justin MillerNATIONAL DIRECTOR OF WEALTH PLANNING AT EVERCORE WEALTH MANAGEMENT

You may receive Form 1099-K for transactions you don’t expect, such as reselling Taylor Swift tickets at a profit, for example, warned Justin Miller, national director of wealth planning at Evercore Wealth Management in San Francisco.

But selling items at a loss, such as used furniture, may be less clear.

“If you sell a $2,000 couch for $1,000, there’s not taxable transaction there,” Markowitz said. “You don’t get a capital loss for it, and you don’t have a gain.”  

What happens if you get a 1099-K by mistake

Although the change aims to collect taxes on income, not personal transactions, experts say some filers may receive Form 1099-K by mistake. 

“The challenge with the new lower threshold amount of $600 for Form 1099-K is that personal payments and reimbursements could be incorrectly reported as taxable transactions,” Miller saidHouse Financial Services Committee announces an FTX inquiry

A frequently asked questions page from the IRS says you shouldn’t receive Form 1099-K for personal transfers, such as reimbursements for splitting meals, gifts or allowances.

However, if you receive the form for personal transactions, the agency says to contact the issuer for a correction. If the company doesn’t fix the error, you can attach an explanation to your tax return while reporting your income correctly, the IRS says.

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