New changes in 1099-K you need to know

Does your business accept payments via credit or debit cards? If you have accepted credit card payments online, you may have to report these payments from credit card or third-party processors on a Form 1099-K

What is the Form 1099-K?

A 1099-K is a tax form that should be filed with individual tax returns and is a transaction record from third-party payment networks such as PayPal or Venmo. These networks complete the 1099-K and send copies to the IRS, state, and the person receiving the payments. The form is used to ensure people report their business income on their tax returns.

New Thresholds for 2022

Beginning in 2022, more small business owners, self-employed individuals, gig workers, freelancers, and independent contractors compared to past years will be affected by the new minimums. 

The minimum transaction reporting thresholds have decreased from previous years, which was gross payments exceeding $20,000 plus 200 transactions prior to 2022, and now has significantly changed to gross payments exceeding only $600 without regard to the number of transactions for years 2022 and after. This means many more 1099 K’s will be sent out than in previous years.

When is the Form 1099-K Issued?

The payee must be issued a Form 1099-K if the service processed more than $600 worth of payments regardless of the number of individual payments or transactions. Meaning, that anybody who accepts payments from credit cards or third-party payment networks such as PayPal or Venmo that exceed the threshold should receive the Form 1099-K by January 31, for the previous.

Things You Need to Remember

• Separate your non-business and business payments. If you happen to use a third-party payment network for your personal payments and business payments you will receive a Form 1099-K that includes all transactions, make sure the transaction amounts are business related. 
• Beware of double reporting your income. It is important to keep good accounting records to ensure you’re not over or under-reporting your business income. For instance, you completed a project and charged $750 for freelance work for a client during the year. You’ll likely report that income as business income on your tax return, but you’ll have two documents reflecting the income. At the end of the year, the client is probably going to send you a 1099-NEC showing that it paid you $750, but if the client paid you using PayPal, Venmo, or a similar platform, you may also receive a 1099-K for the same $750 from the payment network. 

• A 1099-K is not the same as a W-2, which reports income paid to employees.

Wrapping Up

Review your business records to check the gross receipts reported on your Form 1099-K are accurate and that your tax information is correct. Gross amount refers to the total dollar amount of all reportable payment transactions, without regard to any adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts, or any other amounts. 

If you have any questions about filing the Form 1099-K, be sure to reach out to your accountant for help! It’s better to ask for help than to face penalties and fines or an audit.

Not all accounting systems are the same. Whether you hire an accountant, or bookkeeper, or are doing everything in-house, make sure you have your accounting system set up properly. At Redmond, we are happy to help you set up your accounting system so your accounting department can function just like we do, in the cloud, paperless, and maximizing the use of automation. If you’re wanting a review of your accounting system, schedule a complimentary consultation so we can learn more about your business’s needs