In December, the IRS announced a one-year delay for a new tax reporting rule, requiring payment services to issue Form 1099-K for business transfers over $600. Whether the agency intends to amend the rule by raising the transaction amount is unclear, but the delay is welcome news for taxpayers.
If the reporting rule is implemented in one year as is, businesses must prepare. Get started now by talking to an experienced certified public accountant. Let’s look at the proposed 1099-K reporting rule for payment services.
Tax Reporting Rules for Payment Services
Before 2022, taxpayers and the IRS received 1099-Ks when payments crossed a 200,000 transaction threshold in an aggregate amount above $20,000. Notably, a single transfer could have triggered the reporting requirement. Now, the IRS delayed the timeline by one year.
The IRS has delayed the timeline for implementing the $600 threshold “to help smooth the transition,” acting IRS commissioner Doug O’Donnell said in a statement. The move may aslo have been due in part to the lack of guidance available to the public about 1099-K reporting requirements and the increased burden on the electronic payment networks.
Nonetheless, taxpayers will have more time to understand the rules and properly distinguish between personal and business payments to avoid future 1099-K reporting errors.
Although many tax professionals welcomed the announcement, the American Institute of Certified Public Accountants (AICPA) wants further reforms.
“While the AICPA is grateful to the commissioner for this reprieve, we urge Congress to strongly consider previous recommendations to raise the threshold, possibly under the present-day cost-of-living levels,” group president and CEO Barry Melancon said in a statement.
The Takeaway
The one-year delay in the 1099-K reporting rule for $600 transactions through electronic payment services such as Venmo and Paypal is a welcomed reprieve for taxpayers. However, the 1099-K reporting delay only applies to federal taxes; some states already have lower reporting thresholds.
Meanwhile, you still must report business income on your federal tax return regardless of whether you receive 1099-Ks. So tracking earnings from all sources and keeping personal and business accounts separate for payment apps is crucial in the event you do need to file form 1099-K or an IRS audit.
Ultimately, the best way for taxpayers to understand the tax consequences of electronic payment transactions is to consult an experienced CPA like Cody Ravalli. Cody provides first-rate tax and accounting services to businesses and individuals in Brooklyn, New York, and nationwide.