IRS warns taxpayers about new $600 threshold for third-party fee reporting

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

The change applies to funds from third-party networks, similar to Venmo or PayPal, for transactions similar to part-time work, facet jobs or promoting items, in keeping with the IRS.

Earlier than 2022, the federal Kind 1099-Okay reporting threshold was for taxpayers with greater than 200 transactions value an combination above $20,000. Nonetheless, Congress slashed the restrict as a part of the American Rescue Plan Act of 2021, and a single transaction over $600 might now set off the shape.

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Aimed toward closing the tax gap — a high precedence of the Biden administration — the supply is estimated to herald $8.4 billion from fiscal yr 2021 to 2031, in keeping with the Joint Committee on Taxation.  

“It’ll be a brand new type for lots of people,” mentioned Adam Markowitz, an enrolled agent and vice chairman at Howard L Markowitz PA, CPA in Windermere, Florida. “And the worst factor they will do is ignore it.”

Who might obtain Kind 1099-Okay for 2022

Firms file Kind 1099-Okay, generally known as an “data return,” yearly to report bank card and third-party funds, with a duplicate going to taxpayers and the IRS. 

Tommy Lucas, an authorized monetary planner and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida, mentioned the enterprise revenue in your return should embrace what’s reported on Kind 1099-Okay. In any other case, chances are you’ll set off an automated IRS discover and even an audit, he mentioned.

The problem with the brand new decrease threshold quantity of $600 for Kind 1099-Okay is that private funds and reimbursements may very well be incorrectly reported as taxable transactions.

Justin Miller

nationwide director of wealth planning at Evercore Wealth Administration

It is doable you may obtain Kind 1099-Okay for transactions you do not count on, similar to reselling Taylor Swift tickets at a revenue, for instance, warned Justin Miller, nationwide director of wealth planning at Evercore Wealth Administration in San Francisco.

However promoting objects at a loss, similar to used furnishings, could also be much less clear.

“Clearly, if you happen to promote a $2,000 sofa for $1,000, there’s not taxable transaction there,” Markowitz mentioned. “You do not get a capital loss for it, and you do not have a acquire.”  

What occurs if you happen to get a 1099-Okay by mistake

Though the change goals to gather taxes on revenue, not private transactions, consultants say it is doable some filers might obtain Kind 1099-Okay by mistake. 

“The problem with the brand new decrease threshold quantity of $600 for Kind 1099-Okay is that private funds and reimbursements may very well be incorrectly reported as taxable transactions,” Miller mentioned.

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A steadily requested questions page from the IRS says you should not obtain Kind 1099-Okay for private transfers, similar to reimbursements for splitting meals, presents or allowances.

Nonetheless, if you happen to obtain the shape for private transactions, the company says to contact the issuer for a correction. If the corporate would not repair the error, you’ll be able to connect a proof to your tax return whereas reporting your revenue accurately, the IRS says.

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