1099-K New $600 Threshold to Hit Many Unsuspecting TaxpayersShare this post
IRS Changes 1099-K Threshold – Will Catch Many Taxpayers by Surprise
New to the 2022 tax season is a huge change on the 1099-K threshold from $20,000 in transactions from payment cards and third-party networks to $600. If you own an e-commerce business and use apps like Stripe or Paypal, you may receive a notice. If you are a small business that works with aggregators like Lyft, Uber and others in the gig economy, you, too, may get a notice. Also if you sold items online that total more than $600, expect a notice.
A 1099-K is a tax form now common in the gig economy. It reports payments from third parties to people who aren’t employees, at businesses like Uber, DoorDash, and PayPal. The forms will come from payment service providers like Venmo; from marketplaces like eBay, Facebook or Amazon; or another third party such as a bank or a credit/debit card company.
Why Change the 1099-K?
The threshold change occurred as part of the American Rescue Plan Act. Taxpayer advocates are hoping that lawmakers will suspend the change in the threshold during the lame duck session in Congress after the midterm elections as part of an end-of-year tax extenders package or at least find some middle ground in between.
Advocates like the National Taxpayers Union suggest many taxpayers will be taken by surprise; from teenage babysitters and lawn mowers; college students tutoring; to people clearing out old garage and basement items and selling them on eBay and Facebook Marketplace. This will also include roommates and couples splitting rent, vacation or restaurant tabs; sporadic vacation home rental providers; and rideshare drivers with even one mile of business.
How Does it Affect Me?
Starting with the 2022 tax year, payment settlement entities like PayPal and Venmo are required to issue a Form 1099-K for recipients with a gross total of $600 reportable third-party payments. The lower threshold is supposed to give the Internal Revenue Service additional oversight on online transactions and prevent businesses and individuals from skipping out on taxes.
Individuals have always been legally required to declare their profits on secondhand marketplaces, but there’s been little oversight for accounts with revenues under $20,000—until now.
The Department of the Treasury projects greater oversight of third-party transactions will generate an additional $460 billion dollars in tax revenue in 10 years. The lower 1099-K reporting threshold helps close the tax gap stemming from situations where there is little or no information available to the IRS to verify the truthfulness of tax filings, such as with self-employed or contract-based work.
Whatever happens next depends on the outcome of the midterm elections in November, before any real action happens in the lame-duck session with the 1099-K threshold. In any case, taxpayers should be aware of the change and prepared to handle the new 1099-K. Recipients could have tax issues that require the assistance of a tax professional.