Taxpayers are required to report all earned income on their tax returns. Believing that many taxpayers do not comply with that requirement and are part of the so-called "underground economy," Congress enacted a provision in the American Rescue Plan of 2021 to enhance compliance.
In the past, third-party settlement organizations such as eBay, Etsy, Paypal, Venmo, Square and credit card companies were required to submit a report to the IRS when they collected payments for products and/or services for a taxpayer with more than 200 transactions in a year totaling $20,000 or more. Both the IRS and the taxpayer received a Form 1099K. The taxpayer included the income shown on the 1099K on their tax return and the IRS matched the information on their copy of the 1099K with what the taxpayer reported.
The American Rescue Plan dramatically changed the reporting threshold. Beginning with 2022, third-party settlement organizations were required to issue a 1099K if more than $600 had been collected for a taxpayer in a year no matter how few transactions they processed. Taxpayers were to be issued a 1099K by January 31, 2023, reporting income received in 2022.
Many concerns were raised with the IRS about implementation of the new reporting requirement. Hundreds of thousands of taxpayers were expected to receive a 1099K for the first time and not know what to do with it. Additionally, there were concerns that third-party settlement organizations would incorrectly include personal transactions such as gifts, donations, paying someone for a household bill, or sharing the cost of a meal on the 1099K.
In response to the concerns raised, the IRS announced on December 23rd that it would delay implementation of the new reporting thresholds for one year. Because the delay was announced at the last minute, some taxpayers may receive a 1099K for 2022 based on the new thresholds. In the coming weeks, the IRS will provide guidance about what a taxpayer should do if they receive a 1099K they believe they should not have received. However, taxpayers are reminded that all earned income must be reported whether they receive a form or not.
If you have income from sources that you have previously not reported, be sure to discuss that with your tax preparer as soon as possible so that you are in compliance with reporting requirements.
In the past, third-party settlement organizations such as eBay, Etsy, Paypal, Venmo, Square and credit card companies were required to submit a report to the IRS when they collected payments for products and/or services for a taxpayer with more than 200 transactions in a year totaling $20,000 or more. Both the IRS and the taxpayer received a Form 1099K. The taxpayer included the income shown on the 1099K on their tax return and the IRS matched the information on their copy of the 1099K with what the taxpayer reported.
The American Rescue Plan dramatically changed the reporting threshold. Beginning with 2022, third-party settlement organizations were required to issue a 1099K if more than $600 had been collected for a taxpayer in a year no matter how few transactions they processed. Taxpayers were to be issued a 1099K by January 31, 2023, reporting income received in 2022.
Many concerns were raised with the IRS about implementation of the new reporting requirement. Hundreds of thousands of taxpayers were expected to receive a 1099K for the first time and not know what to do with it. Additionally, there were concerns that third-party settlement organizations would incorrectly include personal transactions such as gifts, donations, paying someone for a household bill, or sharing the cost of a meal on the 1099K.
In response to the concerns raised, the IRS announced on December 23rd that it would delay implementation of the new reporting thresholds for one year. Because the delay was announced at the last minute, some taxpayers may receive a 1099K for 2022 based on the new thresholds. In the coming weeks, the IRS will provide guidance about what a taxpayer should do if they receive a 1099K they believe they should not have received. However, taxpayers are reminded that all earned income must be reported whether they receive a form or not.
If you have income from sources that you have previously not reported, be sure to discuss that with your tax preparer as soon as possible so that you are in compliance with reporting requirements.
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