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IRS Modifies Filing Threshold for Form 1099-K

Form 1099-K is an information return used to report certain payment transactions. Prior to 2022, Form 1099-K reporting was required when a third-party settlement organization (TPSO) made more than 200 payments to a payee totaling more than $20,000 for the year. Examples of TPSOs are PayPal, Square, Venmo, Zelle, Cash App, and Stripe. Starting in 2022, a TPSO is required to report a payee’s payments once they total $600. The number of payments is now irrelevant.

The American Rescue Plan Act (2021) clarifies the form only applies to transactions for the provision of goods or services settled through a TPSO. The minimum reporting thresholds only apply to payments settled through TPSOs. Credit card, cash, and checks transactions are not affected by the new rule. Funds received from friends and family will also not be affected. We will likely see taxpayers receive erroneous Forms 1099-K if money transfers were not coded correctly. With the monetary threshold decreased to $600, individuals who sell small amounts of goods on platforms such as Etsy and eBay are concerned about the reporting requirement. It appears eBay is lobbying Congress to increase the $600 threshold with the goal of “stopping over-reporting and the avoidable disclosure of private information.”

Taxpayers receiving Form 1099-K from the sale of goods or services should report their income and expenses on Schedule C. A copy of Form 1099-K is furnished to the IRS, making it an easy item to match (IRS records versus taxpayer’s return) and issue a notice if it doesn’t match.

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