| If you got paid more than $600 in 2022 for goods or services through a third-party payment network like Venmo or PayPal, you will most likely receive an IRS Form 1099-K from your payment network.
For the record: the change doesn't apply to personal transfers.
With that said, you may still be wondering why is this happening.
Due to a changed tax reporting rule, you may receive that Form 1099-K — even if you haven't received one in the past. That's because the 1099-K tax reporting rule now requires third-party payment networks to send a 1099-K if those payments exceed the $600 reporting threshold. A $20,000 threshold previously triggered the Form 1099-K.
This "$600 rule" means that more people than in the past who have side hustles and gigs, or part-time jobs and businesses, and are paid through networks and apps like Venmo, Amazon, Square and PayPal, will receive a 1099-K Form in January.
What exactly is a Form 1099-K? It's basically an IRS information reporting form. The form contains information, for your tax return, about the gross amount of payment transactions that you had on a third-party payment network when that amount exceeds $600 in the previous year. Companies that are required to send a 1099-K provide a copy to you and to the IRS.
"It's going to be a new form for a lot of people," Adam Markowitz, an enrolled agent and vice president at Howard L Markowitz CPA, explained to CNBC reporter Kate Dore. "And the worst thing they can do is ignore it."
So, what happens if you get a 1099-K by mistake? Dore reports that although the change aims to collect taxes on income, not personal transactions, experts say it's possible some filers may receive Form 1099-K by mistake.
The challenge, experts say, is that with the new lower threshold amount of $600 for Form 1099-K personal payments and reimbursements could be incorrectly reported as taxable transactions.
It's possible you'll receive Form 1099-K for transactions you don't expect, such as reselling Taylor Swift tickets at a profit, for example, one expert said.
If you do receive the form for personal transactions, the IRS says to contact the issuer for a correction. If the company doesn't fix the error, you can attach an explanation to your tax return while reporting your income correctly, the IRS says.
For more advice to help you make smart financial decisions, check out CNBC's Financial Advisor Hub and Personal Finance section. |
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