The American Rescue Plan changed Form 1099-K reporting requirements for third-party payment networks like Venmo and Cash App beginning with calendar year 2023. These networks process credit and debit card payments or electronic payment transfers, and their use has exploded over the last several years. As a result, you’ll be sure to see several clients with Form 1099-Ks, and you’ll want to be up-to-date on how the new reporting requirements will impact their taxes.
What is a 1099-K?
Form 1099-K details all payments received through payment settlement entities (PSEs). These entities include payment cards such as credit and debit cards as well as third-party payment networks like Venmo and Cash App. The form can be sent to individuals (using their Social Security number) and businesses (using their TIN). Your clients should receive a separate Form 1099-K from each PSE where the client’s gross payments or the number of transactions exceeded the reporting threshold.
How has Form 1099-K changed for 2022?
In a recent release, the IRS has announced that the requirements around the Form 1099-K will not change for calendar year 2022. Instead, the changes described below will apply to 2023 tax returns.
The most significant change to the 1099-K requirements concerns the de minimis threshold for third-party payment networks. For tax years 2022 and prior, these networks are required to send a Form 1099-K if an individual or business:
- Received more than $20,000 in gross payments and
- Had more than 200 transactions
Beginning in 2023, third-party payment networks will be required to send 1099-Ks to anyone with:
- More than $600 in gross payments and
- Any number of transactions
Since the reporting threshold will be dramatically decreased, you can expect to see more Form 1099-Ks when filing 2023 tax returns. In addition, the new laws attempt to ensure more accurate tax returns from small businesses and individuals in the gig economy or sharing economy who didn’t meet the previous 1099-K reporting threshold.
Note that these changes only apply to third-party payment networks, and reporting requirements for card payments have remained unchanged. Payments received through a credit or debit card have never had a de minimis threshold, so PSEs are required to send a Form 1099-K to anyone who receives them.
Will my clients receive 1099-Ks for personal transactions?
You shouldn’t have to worry about reports for personal transactions. For example, let’s say that throughout the year, your client receives over $600 in reimbursements from friends and family for eating out and other events via an app like Venmo. These types of transactions are excluded from reporting requirements, so your client shouldn’t receive a 1099-K for this. The third-party payment networks typically distinguish between business and personal transactions based on user agreements or short questionnaires that ask whether a specific transaction is for a good or service.
What should you and your clients do with a 1099-K?
Check Accuracy of TIN or Social Security Number
Anyone who receives a Form 1099-K should always check it for accuracy and pay special attention to the TIN or Social Security number. It’s not uncommon for taxpayers to receive a 1099-K that uses their Social Security number when it should use their business TIN instead. They’ll need to get in touch with the PSE to request an accurate 1099-K before they file their return.
They’ll also want to compare the amounts on the form to their business records for the year to ensure the form is accurate.
For Individuals: File a Schedule C
Most sole proprietors and gig or sharing economy workers will receive Form 1099-Ks that list their Social Security number. The information from their 1099-K should be used to complete their Schedule C (Form 1040).
For Businesses: File Form 1120, 1120S or 1065
If your client has a formal business structure, the 1099-Ks should list their business TIN. Then, you’ll use the 1099-K to complete a Form 1120, 1120S, or 1065 depending on their business structure. These forms are supported in the TaxSlayer Pro business suite, which is automatically included in our Classic and Premium software and can be added to a TaxSlayer Pro Web subscription.
Want to brush up on other major tax law changes brought about by the American Rescue Plan Act? See our posts Expanding the ARPA and The American Rescue Plan: What Does It Mean for Tax Preparers?
The information in this article is up to date for tax year 2022 (taxes filed in 2023).
