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Businesses, Are You Ready for 1099-K Reporting in 2023?

August 22, 2022

Attention businesses…do you receive customer payments from third party apps like PayPal, Zelle or Venmo? You may be on the hook for more reporting requirements in 2023 thanks to changes to 1099-K reporting.

*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 31st 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.

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