Over the last few weeks, there have been several communications from the IRS about the $600 reporting requirement threshold for 3rd party settlement firms such as Venmo, Square, and PayPal (Zelle is not considered a 3rd party settlement firm). We have been following these updates since the first communication about this earlier in the year.
This week the IRS announced a delay in the implementation of the requirement for third party business reporting more than $600 for the 2022 calendar year. The delay gives the IRS time to provide additional guidance to tax professionals and taxpayers. Form 1099-K is the IRS reporting form currently issued to taxpayers who receive more than $20,000 from 200 transactions in payments for good or services through 3rd party settlement organizations. The lower threshold of $600 for the 2023 tax year is being implemented to close the tax gap. The $600 lower threshold (regardless of the number of transactions) is set to take effect in the 2023 tax year.
Taxpayers need to properly categorize personal payment transfers versus business payments on the 3rd party platform to minimize reporting errors on future 1099-Ks. For example, Venmo allows you enter information on who you are sending payments to, friends and family or good and services. It is important to note that taxpayers are and have always been required to report all taxable income regardless of whether they receive a 1099-K.
You need to understand what that means going into the new year as an individual and business owner. The IRS issued FAQs about Form 1099-K which addresses some detailed questions that taxpayers may have. We will be keeping you updated as the IRS announces more guidelines on this topic.
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