*Editor's note: The IRS has delayed this requirement for the second year as of November 21, 2023.

Did you read our blog, IRS Releases Major Changes to 1099-K Reporting? Starting in 2022, the 1099-K threshold decreases to $600, meaning many businesses can expect the number of 1099-Ks they receive to skyrocket next year. Here’s what you can do to prepare.

What is form 1099-K?

Form 1099-K is used to report transactions made via payment settlement entities (PSE). If you own a business that accepts payments via credit, debit, and third-party payment networks like Paypal and Venmo, you will likely receive many Form 1099-K’s and will need to report this income.

What is changing?

Starting in 2022, the threshold decreases to $600, meaning if you receive more than $600 per year (no minimum transaction requirement) through third party peer-to-peer payment apps, you will be taxed on those transactions.

Under previous rules, the IRS required each PSE to send your business a Form 1099-K by January 31^st if you received over $20,000 in gross payment volume and over 200 separate payments in a calendar year.

What organizations are considered third party?

If your business uses any of these companies, they will be sending you a form 1099-K:

• PayPal
• Zelle
• Square
• Stripe
• Venmo

Additionally, Lyft and Uber are considered third party organizations, so you will also receive a 1099-K if you had gigs with either of those companies.

What does this mean for you and your business?

Many more businesses will receive 1099-Ks due to this change, and many gig workers will be getting forms for the first time.

To prepare for the change, you should:

• Review your gig activities
• Make sure you have accurate records of payments
• Separate gross receipts received through a PSE that are income from personal payments (example—splitting a check at dinner)—It is wise to maintain separate accounts for personal expenses and business expenses since PSEs cannot distinguish between the two)
• Make sure you document all deductions

Key takeaways

• Individuals who have sold things on selling platforms like Etsy and Ebay might be responsible for higher taxes. Tracking the cost of items sold will reduce such tax.
• More small businesses will need to include 1099-K’s received with their year-end documents.
• The form does not include credits, fees, discounts, or returns, so individuals will be on the hook to track and expense those items on their own.
• More individual tax filers might need to report additional income on Schedule

There has been some talk about increasing the threshold back to $20,000, but it doesn’t look like Congress is on board. We will keep you posted if your reporting obligations change.

Questions? Contact us.