Don’t Throw Out Those 1099-K Forms Coming Soon!

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Don’t Throw Out Those 1099-K Forms Coming Soon!

By Mark Schwendau

 

It is becoming clearer why acting president Joe Biden needed to hire another 87,000 armed IRS agents for the future. Congress lowered the threshold for businesses and individuals to send the 1099-K form from $20,000 to $600 this year. This was a result of tax filing changes in the American Rescue Plan Act of 2021.

From Wikipedia:

“The American Rescue Plan Act of 2021, also called the COVID-19 Stimulus Package or American Rescue Plan is a US$1.9 trillion economic stimulus bill passed by the 117th United States Congress and signed into law by President Joe Biden on March 11, 2021, to speed up the country’s recovery from the economic and health effects of the COVID-19 pandemic and the ongoing recession.”

Internal Revenue Service sign with a traffic signal in the foreground indicating a red light.

This new tax reporting rule requires third-party payment platforms to issue you and the IRS a 1099-K form for business transaction payments if they add up to more than $600 in a year. Such a business taxable transaction is defined as a payment for a good, service, or tip. Previously those platforms only had to issue a 1099-K if you engaged in more than 200 business transactions where you received total payments of more than $20,000. But this new lower threshold of $600 opens the door to a virtual paper chase of tax forms in the 2023 tax filing season.

The problem for those to file, as well as the IRS, will be to determine if it was a profit, loss, or just an amount to cover the original cost. Obviously, if copious records are not kept, the taxpayer could be on the hook for the whole amount.

The most probable triggers for this wave of information-reporting forms coming to taxpayers who have never before received a 1099-K will from the use of payment services such as Venmo, PayPal, and Apple Cash and online merchants like eBay, Etsy, Facebook Marketplace, and Amazon Marketplace.

While the Internal Revenue Service (IRS) has been doing a good job urging taxpayers to get ready to file their 2022 tax returns while cautioning them to beware of the newly lowered threshold for receiving a Form 1099-K if they received payments amounting to as little as $600, the mainstream news media has been seemingly doing an intentionally poor job of informing the public. Once again, this is presumably to protect Joe Biden from public backlash.

“Taxpayers should report the income they earned, including from part-time work, side jobs, or the sale of goods,” said a spokesperson for the IRS. “The American Rescue Plan Act of 2021 lowered the reporting threshold for third-party networks that process payments for those doing business. Before 2022, Form 1099-K was issued for third-party payment network transactions only if the total number of transactions exceeded 200 for the year and the aggregate amount of these transactions exceeded $20,000.

“Now, a single transaction exceeding $600 can trigger a 1099-K. The lower information reporting threshold and the summary of income on Form 1099-K enable taxpayers to more easily track the amounts received. Remember, money received through third-party payment applications from friends and relatives as personal gifts or reimbursements for personal expenses is not taxable. Those who receive a 1099-K reflecting income they didn’t earn should call the issuer. The IRS cannot correct it.”

Taxpayers receiving 1099-Ks for the first time will have to determine what portion of the amount reported on the form is actually taxable versus what portion represents payments that may be deductible business expenses, such as a fee paid to the payment platform or a credit issued to the business. For example, If you bought a winter coat and hardly wore it and then went on a diet and it no longer fits, you will have to have records of what you paid for the coat originally to prove profit or loss upon the sale of the coat.

While the government and the IRS are famous for talking points like:

“The new rule doesn’t impose any additional taxes on anyone. Nor does it change your obligation as a taxpayer to always report your taxable income from your business activities.

“But the 1099-K reporting will make it harder for someone to evade the taxes they owe by underreporting their business income.”

But it will make life more difficult for average Americans who try to always play by the rules, including the rules of the IRS.

The IRS points out that the new rule doesn’t apply to personal transactions you conduct on electronic payment platforms. An example is given; If a friend sends you money through Venmo to help pay for a dinner out, or your mother sends you some spending money, that will not need to be reported.

But what if that amount exceeds $600? How will the IRS know, or how will the taxpayer explain the transaction to the IRS? Questions are bound to arise.

Also, the 1099-K reporting rule doesn’t apply to any transactions made through Zelle. That’s because Zelle is a payment clearinghouse that connects the payer’s bank account directly to the receiver’s bank account. “Zelle facilitates messaging between financial institutions but does not hold accounts or handle settlement of funds,” the company said in a statement.

Still, the IRS may get reporting on at least some of your business transactions on Zelle. For example, if there is a business-to-business payment over the Zelle network, the business that made the payment must provide the receiving business and the IRS with either a 1099-NEC for non-employee compensation or a 1099-MISC for miscellaneous expenses.

Copyright © 2022 by Mark S. Schwendau

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Mark S. Schwendau is a retired technology professor who has always had a sideline in news-editorial writing where his byline has been, “Bringing little known news to people who simply want to know the truth.”  He classifies himself as a Christian conservative who God cast to be a realist.  Mark is an award-winning educator who has published seven books and numerous peer-reviewed trade journal articles, some of which can be found on the Internet.  His father was a fireman/paramedic, while his mother was a registered nurse.  He holds degrees in technology education, industrial management, OSHA Safety, and Driver’s Education.  His website is www.IDrawIWrite.Tech.


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GuvGeek
GuvGeek
2 months ago

This sounds like the Accountant Full Employment Act!

The Government wants to see much as they can about us, especially how many guns we are buying, how many bullets, and how much “survival” food. In other Words, the Communist Chinese Government wants to know if they can take over America with their Military and keep our resources in tact if they do.

Last edited 2 months ago by GuvGeek