Here’s why you may get Form 1099-K for third-party payments in 2022

The IRS on Tuesday shared ideas for the upcoming tax season — together with a reminder concerning the new $600 threshold for receiving Form 1099-K for third-party payments.

The change applies to payments from third-party networks, equivalent to Venmo or PayPal, for transactions equivalent to part-time work, aspect jobs or promoting items, based on the IRS.

Before 2022, the federal Form 1099-K reporting threshold was for taxpayers with greater than 200 transactions price an mixture above $20,000. However, Congress slashed the restrict as a part of the American Rescue Plan Act of 2021, and a single transaction over $600 may now set off the shape.

More from Personal Finance:
Biden administration extends fee pause on pupil mortgage debt
'The stakes are excessive.' Why there's a push to increase the kid tax credit score in 2022
Here's the way to rating a charitable tax break on Giving Tuesday

Aimed at closing the tax hole — a high precedence of the Biden administration — the availability is estimated to convey in $8.4 billion from fiscal 12 months 2021 to 2031, based on the Joint Committee on Taxation.  

"It's going to be a new form for a lot of people," stated Adam Markowitz, an enrolled agent and vice chairman at Howard L Markowitz PA, CPA in Windermere, Florida. "And the worst thing they can do is ignore it."

Who may obtain Form 1099-K for 2022

Companies file Form 1099-K, generally known as an "information return," yearly to report bank card and third-party payments, with a replica going to taxpayers and the IRS. 

Tommy Lucas, a licensed monetary planner and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida, stated the enterprise revenue in your return should embrace what's reported on Form 1099-K. Otherwise, you may set off an automated IRS discover and even an audit, he stated.

The problem with the brand new decrease threshold quantity of $600 for Form 1099-K is that private payments and reimbursements might be incorrectly reported as taxable transactions.Justin Millernational director of wealth planning at Evercore Wealth Management

It's potential you'll obtain Form 1099-K for transactions you don't count on, equivalent to reselling Taylor Swift tickets at a revenue, for instance, warned Justin Miller, nationwide director of wealth planning at Evercore Wealth Management in San Francisco.

But promoting gadgets at a loss, equivalent to used furnishings, may be much less clear.

"Obviously, if you sell a $2,000 couch for $1,000, there's not taxable transaction there," Markowitz stated. "You don't get a capital loss for it, and you don't have a gain."  

What occurs if you get a 1099-K by mistake

Although the change goals to gather taxes on revenue, not private transactions, consultants say it's potential some filers may obtain Form 1099-K by mistake. 

"The challenge with the new lower threshold amount of $600 for Form 1099-K is that personal payments and reimbursements could be incorrectly reported as taxable transactions," Miller stated.

watch nowHouse Financial Services Committee pronounces an FTX inquiryTechCheck

A continuously requested questions web page from the IRS says you shouldn't obtain Form 1099-K for private transfers, equivalent to reimbursements for splitting meals, items or allowances.

However, if you obtain the shape for private transactions, the company says to contact the issuer for a correction. If the corporate doesn't repair the error, you can connect an evidence to your tax return whereas reporting your revenue accurately, the IRS says.

based mostly on website supplies

Related posts

Leave a Reply

Your email address will not be published. Required fields are marked *