New 1099-K Reporting Requirements – Questions & Answers

December 19, 2022 | By Jessica Goedtel, CFP®

UPDATE: As of 12/23/2022, the new 1099-K filing threshold is delayed until the 2023 filing year. 

In the past few weeks, you’ve seen headlines about new tax rules for reporting online payments over $600. While the form itself – Form 1099-K –  isn’t new, the filing threshold has dropped from $20,000 to $600.

What’s a 1099-K? A tax form that reports income to you from credit cards and third-party network transactions. The forms are sent by each “network,” such as CashApp, Paypal, Stripe, etc.

Does this mean I have to pay more taxes? No. As long as you’ve been reporting all your income, this won’t result in more taxes for you. It’s a paper trail for the IRS to follow for people who aren’t reporting their income.

What’s getting reported on it? The gross amount collected on that network. If processing fees are being taken out, the 1099 amount is before those fees.

How is Form 1099-K different from other 1099 forms I received? A 1099 is simply a form that reports income outside of employment. Income such as bank account interest (1099-INT), dividends, (1099-DIV), and capital gains (1099-B) get reported on these forms.

Online sex workers also get 1099-NEC and 1099-MISC forms, which show income paid by other businesses such as OnlyFans or other creators.

How can I make this process go smoothly? Make sure you are reporting all income accurately in your accounting software. This will help when tax time comes or if you ever get audited. If income is reported to you on a Form 1099-K that you do NOT report on your tax return, you may trigger an IRS notice.

Keep your business account separate from your personal accounts. Most payment processors will ask you if a transaction is personal or for business. Personal transactions should not generate a 1099-K.

You may get requests from third-party payment processors to confirm your information, such as your business EIN and address. As always, be vigilant before clicking any email links. If possible, log in directly to each payment processor’s website directly and review your personal information.

When will I see my 1099-K forms? 1099-K forms are due to recipients by January 31st, so you should receive your forms in January or early February 2023.

Is there any good news? Yes! If you’ve been issuing 1099-NECs to contractors for your business, but have been paying them through a third-party payment processor, you won’t need to issue them a 1099-NEC anymore. They’ll get the 1099-K from the third-party instead. If you’re paying via check, online bill pay, or Zelle, you’ll still need to issue 1099-NEC forms for those payments.

If there are better ways you’d like to spend your time other than worrying about tax forms, schedule a call with me.

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