IRS Form 1099-K: What You Need to Know

Overview of Form 1099-K

Although Form 1099-K has been around since 2011, it has been brought to the forefront due to the popularity of payment apps (i.e., Venmo, PayPal, and Upwork) and the continual rise of online business transactions.

These payment settlement entities are required by the IRS to send Form 1099-K to individuals or businesses who accepted payments using their services.

Reporting Requirements

What has also been making the news lately is the reporting requirement with Form 1099-K. Prior to the COVID pandemic, the threshold to receive Form 1099-K was at least $20,000 worth of payments and at least 200 transactions during the previous year.

Starting in January 2022, the American Rescue Plan Act (ARPA) changed this threshold amount. The new threshold is $600 (compared to $20,000), with no minimum number of transactions (compared to 200). This new, much lower, threshold amount will affect many more people and small businesses including online sellers, self-employed business owners, and contractors.

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Drawbacks

Experts feel this $600 threshold will put more of a burden not only on the payment services but the IRS itself.

Many people use these payment services for making personal payments to family and friends because of the convenience. Some of these payment services have the ability for their users to designate a transaction as “non-business related”.

It will be important for businesses and individuals using these services to keep track of payments they receive, document what the payment was for, and indicate who they received it from to ensure only business transactions are reported.

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H.R. 7079/S.3840

In March 2022, a bill was introduced to the House of Representatives to amend the IRS Code of 1986 that would increase the threshold amount from $600 to $5,000.

Many feel this is a more appropriate amount that will still allow the government to receive taxes for business transactions, while at the same time decreasing the workload on the payment services and the IRS.

Current Status

At the time of this writing, H.R. 7079 (Cut Red Tape For Online Sales Act) was in the hands of the House Ways and Means Committee. A related bill in the Senate (S.3840) is currently with the Senate Finance Committee. If you would like to keep up to date on the progress of these bills, please use the links below:

H.R. 7079

S.3840

If your business uses online payment services and you have questions regarding Form 1099-K, please use the button below to reach one of our experts.