New reporting threshold for 1099-K filing
The last few years have shown us that there’s no one single way to earn a living; from freelancers to ride-share drivers to digital nomads to side hustlers, people are finding all sorts of ways to earn money to pay their bills. Of course, the government is right behind them with the appropriate tax forms.
Many business owners are likely familiar with the IRS 1099-K Payment Card and Third Party Network Transactions form. This form is specifically for payments received via a third-party network (e.g., PayPal, Cash App) or credit or debit card transaction.
Businesses reporting this type of income may face different reporting requirements for state and federal taxes (and for some states, like Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming, which don’t have a state income tax). A number of states have combined federal and state filing for the 1099 series of forms, including California and Colorado. Check if your state participates in a combined federal and state filing program.
New threshold for 1099-K
Starting in tax year 2022, taxpayers will be issued a Form 1099-K if their business or service processed more than $600 worth of credit card or debit card payments, regardless of how many individual transactions occurred. This is a huge change; before tax year 2022, the minimum reporting threshold was $20,000 and more than 200 transactions.
So how did the IRS get to $600 as a threshold? They followed the lead of states like Massachusetts and Vermont. In 2017, these two states began requiring small businesses to report income at the threshold of $600. The lower reporting threshold resulted in an increase in reporting by over 100%
The results in Massachusetts and Vermont speak for themselves; the threshold change means small business owners and gig workers who may have previously flown under the tax reporting radar, weren’t aware of their tax filing options, or just had a lot of confusion when it came to reporting requirements should receive the IRS forms necessary to remain compliant each year during tax season (Note: If you don’t receive a 1099-K form from your third-party payment settlement entity, and you meet the threshold requirements, you still need to report that income).
What does this change mean for businesses and bookkeepers? To start, a lot more paperwork.
If you’re getting a little overwhelmed in doing the mental math for how much time and money changes to the 1099 forms might cost your business, you’re in the right place. Avalara has IRS e-filing solutions that can handle whatever changes the IRS throws at your business. Please visit track1099.com for information on how Avalara can help you manage your 1099 filings quickly and inexpensively.
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