The start of tax season is around the corner, and filing for 2022 taxes will be different for millions of Americans with the updated 1099-K form.
The form was first issued in 2012 as it reports taxable income for goods sold through third-party settlement organizations – a fancy term for apps such as Venmo, PayPal, and CashApp that are used to transfer money.
For years, an individual must have used third-party settlement organizations a minimum of 200 times with a gross collected amount of $20,000, but Congress reduced the threshold to only $600 and one transaction as part of the American Rescue Plan passed in 2021.
“The intention of this new law was more and more commerce is happening online, the digital economy is growing and growing, so the idea of lowering the threshold was to capture more of those transactions,” said Andrew Lautz, director of Federal Policy for the National Taxpayers Union Foundation. “This is going to be really confusing for taxpayers in the New Year. We don’t think the additional revenue that the IRS can collect on taxes that are truly owed. We don’t think that juice is worth the squeeze here.”
Here is what you need to know:
The 1099-K form is only for people who sell goods for money, so if you only use these apps to pay people, you are good.
The form is also only used when the transaction can be classified as taxable income. So, if your roommate pays you for rent, or a family member reimburses you for a gift or dinner through these apps, you do not need to worry about the 1099-K.
Now, if you resell concert tickets on Ticketmaster, for example, sell a used dresser for face value or give a haircut and have the person pay you through an app and your transactions get you over that $600 threshold throughout the year, you will likely need to fill out the form.
“Taxpayers should always keep good records, right? So, you should know if you’re going to get this 1099-K. However, if it comes as a surprise, do not not do anything,” said Karen Connelly, spokesperson for the IRS.
Connelly points out that the 1099-K form will only be issued by the app you use by January 31, 2023, at the latest, and it will not be issued by the government.
Since this is the first year the new $600 threshold is being enforced, you might get a form even if you do not need it. It is why Lautz says paying close attention to these changes and your receipts is important. It is also why he thinks the time to sort it all out is an unnecessary burden.
“Those hours, you know, are time taxpayers could be spending with their families, doing work, you know, this has a cost on the economy, so we are concerned with what we call the compliance and the reporting burdens here,” said Lautz.
Currently, there are bills proposed by Democrats and Republicans to raise the threshold to $5,000, even the previous $20,000, but Lautz says it is unlikely those bills will pass before tax season is here.
