The IRS has recently announced a delay in the implementation of changes to the reporting threshold for Form 1099-K. Form 1099-K, Payment Card and Third Party Network Transactions, is used to report third-party platform payments. Originally scheduled for 2023, the IRS has decided to postpone the implementation of greater reporting thresholds. However, they’ve cited the need for additional time to address concerns and provide a smoother transition for affected parties. In this article, we will discuss the new reporting thresholds amounts and when they will be implemented.
New 1099-K Reporting Threshold for 2024
The 2023 tax year was supposed to be accompanied by a new reporting threshold for Form 1099-K. The $600 threshold would’ve been a substantial decrease from the previous $20,000 over 200 transactions. This change is part of an effort by the IRS to more accurately capture income generated through third-party payment platforms. These include those used by freelancers, gig workers, and small businesses, like Venmo, PayPal, and more. Also, if you sell on platforms like Amazon, Shopify, eBay, or Etsy, you can expect to receive Form 1099-K. Notably, Zelle is one of the only platforms that does not issue Form 1099-K.
However, due to continued taxpayer confusion over the new rules, the IRS has postponed the implementation again. They are using 2023 as yet another transition year. In tax year 2024, the threshold for IRS Form 1099-K will be $5,000. This increase will serve as a phase-in for the $600 threshold in the future. The delay allows affected parties, including payers and recipients, more time to adjust to the new reporting requirements. The phased approach aims to ease the burden on taxpayers and facilitate a smoother transition to the higher reporting threshold.
Impact on Taxpayers
The delayed implementation is expected to be well-received by taxpayers who rely on third-party platforms for income. The increased reporting threshold to $5,000 for the tax year 2024 means that individuals and businesses with lower transaction volumes may be exempt from filing Form 1099-K. This can potentially reduce the administrative burden on both payers and recipients, streamlining the reporting process. However, taxpayers need to know it is always their responsibility to report any earned income. This is true whether they receive Form 1099-K or not. Remember, the fastest and surest way of being audited by the IRS is to underreport income.
The IRS has emphasized the importance of seeking public input on the proposed changes. The delay reflects a responsive approach to concerns raised during the comment period. This collaborative effort between the IRS and the public underscores the agency’s commitment to making informed decisions that consider the needs and perspectives of all stakeholders.
Tax Help for Those Who Receive 1099-Ks
The IRS’s decision to delay the implementation of the increased reporting threshold for Form 1099-K demonstrates a willingness to address concerns and ensure a smoother transition for affected taxpayers. The phased approach provides valuable time for stakeholders to prepare for the changes. The IRS will continue to engage with the public and refine its policies. Meanwhile, taxpayers can anticipate a more gradual and well-supported transition to the new reporting requirements. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers.
Form 1099 is more common than ever with many taxpayers turning to side hustles for extra income. Now that we have a good understanding of what types of 1099s there are and what they are used for, we can review some of the most frequently asked questions about them. Here are some of the most frequently asked questions about IRS Form 1099.
What if I mistakenly received a 1099?
If you received a 1099 by mistake, or if your 1099 has an error on it, you should report the error to the payer immediately. If you’re lucky, they’ll be able to correct the error before sending a copy to the IRS. On the other hand, if they already have sent the 1099 to the IRS, you’ll need to request they send a corrected form. Spotting an error quickly will give you the best chance at avoiding further complications. That said, knowing which 1099s to expect in advance, and knowing the expected amount shown on them, can help you catch mistakes early on.
Do I need to report every 1099 I receive?
Every 1099 you receive should be considered in your tax return. This is because the IRS also receives a copy of each of your 1099s as well. For example, you must include all income earned through 1099-NEC, 1099-MISC, 1099-K, 1099-DIV, and others that report income. However, let’s say you receive 1099-S after the sale of your home. Remember, if the property was your primary residence for two of the five years before the sale, then up to $250,000 of the profit is exempt from taxes. This amount increases to $500,000 for married couples filing jointly. In this scenario, the transaction is not reportable. However, you will need to submit a written certification stating why you are exempt from capital gains on the transaction. Be sure to always consult with a knowledgeable tax professional about your reporting requirements.
What’s the difference between a 1099 and a W-2?
A 1099 form reports any income earned outside of regular employer income. It is commonly received by independent contractors, gig workers, and investors. A W-2 reports wages earned through an employer for the year. The biggest difference between the two forms is that the W-2 shows any taxes withheld from your wages, while the 1099 does not. That doesn’t mean you’re off the hook though. If you earn income through 1099s, you should be making estimated tax payments each quarter since the IRS requires taxes to be paid as income is earned. Failing to pay estimated taxes on 1099 income can result in penalties, interest and surprise tax bills.
What changes are coming for the 1099-K?
Previously, taxpayers only received a 1099-K, Payment Card and Third-Party Network Transactions, if they received over $20,000 in aggregate payments over 200 transactions through third-party payment networks, like Venmo or PayPal. For the 2023 tax year, the 1099-K reporting threshold was drastically reduced down to just $600 in aggregate payments. The IRS is expecting many more taxpayers to receive a 1099-K by the January 31st deadline, but with some hiccups along the way. For example, you may mistakenly receive a 1099-K for non-business transactions, like collecting rent money from a roommate or receiving a friend’s portion of a dinner bill. In this case, it is up to you to contact the filer to request a corrected form.
What if I have more questions about 1099s?
We can’t stress enough just how complex 1099s can be. With a couple dozen 1099 types and each with their own set of rules, it’s best to consult a tax professional for insight on your own personal tax situation. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.