Tax Form 1099-K: What you need to know

Form 1099-K is an IRS information return used to report certain payment transactions for goods and services. It is not a new form, but legislation changes in March 2021 significantly decreased the filing threshold that was scheduled to be implemented for the tax year 2022. The IRS has delayed the change in the filing threshold until the tax year 2023. In the meantime, the AICPA is advocating for an increased reporting threshold.
The Form 1099-K reports payments and transactions for goods and services from online platforms, apps, and payment card processors (such as Venmo or Paypal).
Note that the changes to the reporting threshold are NOT intended to track personal transactions, such as sharing the cost of a meal, gifts, or reimbursement for personal expenses.

What is the 2022 reporting threshold for the Form 1099-K?
For the calendar year 2022, Form 1099-K will be sent to you if you receive payments from a third-party settlement organization for goods/services where:

• The total number of transactions exceeds 200 AND
• The combined number of payments exceed $20,000

A Form 1099-K will also be sent to you if a payment is received from a payment card for any amount (for example, using a square credit card reader). This reporting requirement has not changed.

What is the current reporting threshold for 2023 and forward for the Form 1099-K?

Starting in 2023, taxpayers who receive payments over $600 with any number of transactions from a third-party settlement organization for goods/services will receive a Form 1099-K.

What happens if I received a Form 1099-K in error (such as for a personal reimbursement for an expense)?

Contact the issuer of Form 1099-K to determine if they will issue a corrected form. If they are unable to issue a corrected form, the IRS recommends reporting the information as follows:

• Part I – Line 8z – Other Income: Form 1099-K Received in Error
• Part II– Line 24z- Other Adjustments: Form 1099-K Received in Error

The net effect of these two adjustments on adjusted gross income would be zero.

What’s the difference between a Form 1099-K, Form 1099-NEC and Form 1099-MISC?

• Form 1099-NEC reports compensation payments of $600 or more for services provided to someone who isn’t an employee.
• Form 1099-MISC reports other types of income, such as rents, royalties, prizes or awards paid to third parties.
• Form 1099-K reports payment card and third-party network transactions. This form will come from the payment settlement entity, rather than from the business or person who pays for the goods/services.

Businesses must keep careful records to determine how the payments should be reported, but it is possible that transactions could be duplicated. Note that businesses should carefully consider the classification of someone as a non-employee versus an employee.

What should I do if I receive a Form 1099-K in my name and it should have been reported to my business?

Contact the Payment Settlement Entity listed on the Form 1099-K to request a corrected form showing the business’s TIN. For tax return reporting purposes, report the income from the Form 1099-K on the appropriate business return. Maintain documentation for your files of the correspondence.

How do I prevent personal transactions from being reported to me on Form 1099-K?

Both PayPal and Venmo offer the option to tag their transactions as either personal/friends and family OR goods and services by choosing the appropriate category for each transaction. Note that if you are selling a personal item, such as concert tickets, this should be considered a goods/services transaction.

A best practice would also be to ensure that business transactions and personal transactions are kept separated within the third-party platform.

I sold personal items (such as household goods) during the year and received payment using a third-party settlement organization. How should this be
reported on my tax return?

You should first determine whether the items were sold for a gain or a loss (generally, sales price less acquisition cost). You cannot offset the gain on the sale of personal assets with losses from the sale of personal assets. See Publication 525, Taxable and Nontaxable Income, for further guidance.

If you sell an item you owned for personal use at a gain, your gain is taxable as a capital gain (regardless of whether it was reported on a 1099-K).
If you sell a personal item at a loss and you receive a 1099-K, report this transaction as follows:

Part I – Line 8z – Other Income – Form 1099-K Personal Item Sold at a Loss
Part II – Line 24z – Other Adjustments – Form 1099-K Personal Item Sold at a Loss

The net effect of these two adjustments on adjusted gross income would be zero.

I have a crafting hobby and sell my products on Etsy. I received a Form 1099-K. How should this be reported?

There can be complicated rules around whether an activity is a hobby or a business for tax purposes. But if the activity is considered a hobby, the income should be reported (regardless of whether it is reported on a Form 1099-K or other form) and the expenses are not allowed.

Summary

Absent further legislation, the lower threshold of $600 for third-party settlement organizations will be in effect for the 2023 tax year.

Tax law has not changed regarding the reporting of income. The changes to Form 1099-K and information reporting are meant to increase voluntary tax compliance.

This IRS Fact Sheet 2022-41 can provide more details.

We are here to help. Please contact us if you have any questions.

Reviewed March 16, 2023

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