The American Rescue Plan Act of 2021 changed the rules around the IRS Form 1099-K — a change that is likely to have the biggest impact on taxpayers who are self-employed (i.e., sole-proprietors, independent contractors, consultants, single-owner LLCs).
What’s the new rule for 1099-Ks?
Beginning with tax year 2022 (returns filed in 2023), if you receive $600 or more in payments for goods and services and those payments were processed by a third-party payment network (like PayPal, Venmo, Square, Cash App, etc.), that income will be reported on Form 1099-K.
*For tax year 2021 and earlier, the reporting requirement was 200 transactions and $20,000.
What is Form 1099-K, and why am I getting one?
IRS Form 1099-K Payment Card and Third-Party Network Transactions is an informational tax form that tells the IRS how much income a person received in the form of electronic or credit/debit card payments for the sale of goods and services.
If you received $600 or more from your customers by debit/credit card payments or through apps like Venmo or PayPal, you should get an IRS Form 1099-K from each company that processed those transactions for you.
Who sends the 1099-K to me?
Any payment settlement entity that handles debit or credit card transactions or electronic payment transfers for you and who processed $600 or more in payments for you during the year should send you a Form 1099-K.
Let’s say that in 2022, your customers Venmoed you a total of $750, and you accepted credit card payments using Square for a total of $850. In January 2023, you should receive a Form 1099-K from Venmo and a separate Form 1099-K from Square.
Do I have to report my Form 1099-K?
It’s important to report the information on your 1099-K correctly so you don’t end up paying too much or too little in taxes. Accurate reporting will help you avoid a surprise tax bill and decrease your chances of being audited.
I get money from friends and family in PayPal. Are these transactions taxable?
The IRS is clear that “reporting by third-party settlement organizations applies only for transactions for the provision of goods or services settled through a third-party payment network.”
In other words, your personal transactions (with friends and family, for example) are not taxable.
Can the IRS see my Cash App/Venmo/PayPal account?
No, the IRS can’t directly see the activity in your payment apps.
At tax time, the third-party processing company sends both you and the IRS a copy of your 1099-K. The info on 1099-K lets them know about the transactions that took place on your account during the tax year. It’s up to you to report and confirm these earnings on your tax return.
How do I report my 1099-K in TaxSlayer?
Your 1099-K payments get reported on Schedule C. TaxSlayer makes it simple to enter this info on your tax return. Simply follow the instructions in the program.
If you’re receiving a 1099-K, you’re most likely self-employed. TaxSlayer Self-Employed is designed to make filing as easy as possible for your unique tax situation. Check out TaxSlayer Self-Employed.
What if I didn’t get a 1099-K?
If you think you should have received a 1099-K, but it hasn’t arrived by January 31, it’s a good idea to reach out to the third-party processor you use.
Note: It’s always recommended that you keep good, independent records of your business income and expenses. That way, if the company did not prepare a 1099-K for you, you can still report your sales on Schedule C of the 1040 return.