1099-K requirements have been causing a lot of confusion. That’s in part because a new 1099-K tax reporting rule requires third-party payment networks to send a 1099-K if payments that you received for goods or services through third-party networks like Venmo, PayPal, Amazon, and Square, exceed a new $600 reporting threshold. The so-called $600 rule was supposed to go into effect last year but was delayed by the IRS, which caused even more confusion.
Now, some online marketplaces including PayPal, eBay, and Etsy, want to see IRS 1099-K relief for online sellers. The Coalition for 1099-K fairness says on its website, that the new IRS $600 rule would disproportionately burden some taxpayers, who could be at risk of over-reporting their income or “forced to hire a tax professional” to ensure compliance with the reporting requirement.
However, unless Congress takes action, millions of people who sell goods or services online should prepare now for the new reporting requirement.
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What does this mean for you if you are paid for goods and services through a third-party payment network?
- For your federal income tax return that you are filing now, the former, higher $20,000/200 transaction threshold applies for goods and services that you received payment for through third-party payment networks last year.
- In other words, if your transactions from last year meet the higher threshold, you should have received a 1099-K form. (Although some people reportedly received 1099-K forms for transactions under the higher threshold, despite the delayed rule).
- But for 2023, the "$600 rule" is expected to apply. So, more people than in the past who have side hustles, gigs, part-time jobs, and businesses, and are paid through a wide range of networks and apps like Venmo, Amazon, Square, and PayPal, (to name just a few), will eventually receive a 1099-K Form.
However, It’s also important to note that a new 1099-K reporting requirement doesn’t change the fact that the IRS has always required taxpayers to report all taxable income, whether they receive a 1099-K form or not.
So, since the $600 rule is a key tax reporting change that will likely come around again for payments you receive this year, it’s good to have information about what IRS Form 1099-K is, and what a lower $600 threshold could mean for you and your online business or casual selling going forward.
What is a 1099-K Form Used For?
Form 1099-K is basically an IRS information reporting form. The form contains information, for your tax return, about the gross amount of payment transactions that you had on a third-party payment network when that amount exceeds $20,000 in the previous year. Companies that are required to send a 1099-K provide a copy to you, and to the IRS.
When will you receive a Form 1099-K? Generally, if you received more than $20,000 in payments for goods or services through third-party payment network transactions in 2022, you should have received a Form 1099-K in late January or early February of this year.
If you receive a Form 1099-K, you will want to make sure that it matches the information that you have in your records.
If there are any problems with your 1099-K (e.g., the amounts listed don’t belong to you or other information on the form is incorrect), you should contact the third-party payment network that sent the form. They might be able to issue a corrected 1099-K.
1099-K Reporting Requirement 2023
Previously, to receive a 1099-K from a third-party payment network, you had to exceed $20,000 in transactions for goods and services and have more than 200 business transactions in a year.
But for transactions that occur during 2023, the $600 1099-K threshold currently applies. So a lot more people, even those who are more casual online sellers, will receive 1099-Ks in early 2024 when they're ready to file their 2023 tax returns.
Will You Get a 1099K From PayPal or Venmo?
Some people are wondering if they were supposed to receive a 1099-K from Venmo, or PayPal for the 2022 tax year. The answer is maybe. Yes, the IRS initially delayed the $600 rule, so not as many people received a 1099-K for this tax filing season. But Venmo, PayPal, Amazon, Square, Cash for Business through Cash App, and other third-party payment network providers, like Stripe, are still required to report payments for goods and services to the IRS on Form 1099-K when those payments exceed the previous $20,000/200 transaction threshold. So if you exceeded those amounts, you should have received a 1099-K for the tax return that you're filing now.
Businesses that are required to report your income over $20,000 also include popular sites like Etsy, StubHub, Depop, Poshmark, etc. If you're unsure about whether you will receive a 1099-k, most of these sites have questions and answers on their websites that can help.
Keep in mind, however, that personal transactions (e.g., personal payments to friends and family) on the payment networks including Venmo, PayPal, etc., are not considered "payments for goods and services." That's important because the1099-K third-party payment network reporting rule applies to payments made for goods and services. It doesn't apply to payments made through the payment networks that were gifts, or other personal payments of money to family and friends.
For example, if you received payment through a personal Cash App account during the year, those transactions won’t be reported on a 1099-K. In this example, that personal Cash App account is designed for noncommercial use, like sending a friend money because you’re splitting the cost of a meal. But if you have a Cash for Business account with Cash App (opens in new tab), and your transactions exceed the $20,000/200 transaction tax reporting threshold last year, you should have received a 1099-K earlier this year to file with your federal return.
If, for some reason, personal transactions from any of the third-party payment providers get reported on your Form 1099-K, contact the payment network to see if you can get a corrected form.
If you can’t get a correction, your own records should show personal payments made on the network versus payments for goods and services. Good records can help support the amount of income that you claim on your tax return.
IRS 1099-K Requirement: Do You Have to Report a $600 Income?
Normally, any 1099-K Form will go to you and to the IRS. So, the likelihood that the IRS will notice a difference on your federal income tax return between your income reporting, and the reporting on your 1099-K form, (if there are differences) is relatively high. But keep in mind that the $600 reporting requirement currently applies for transactions during 2023. So unless something changes, you should plan on working with the $600 rule when you file your 2023 tax return.
Also, the IRS requires taxpayers to report all taxable income, so it’s best to report your taxable income and to keep good records that substantiate that income.
If you’re worried about tax liability from your side hustle, consider whether some tax deductions and credits for the self-employed might help reduce your tax bill, and double check other important tax changes for this filing season.
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