Just when you think the IRS is finished rolling out surprise changes to the tax code, they've recently announced a roll-back of one key change affecting self-employed individuals and third-party payment companies. The new $600 threshold for income received through credit card and debit card companies and apps like Venmo or PayPal is no more.
The change would have required these companies to report more than $600 of payments to self-employed individuals to the IRS in 2023 using the 1099-K form. But now this change won't happen until 2024.
If you are a third-party payment organization, your 1099 reporting requirements are not changing, at least not yet. And if you're self-employed, you'll still receive a copy of the 1099-K forms that report payments made to you when a payment organization sends them to the IRS. And as before, this will only happen if the payments amount to $20K or more, or they number 200 or higher.
In 2021, the American Rescue Plan introduced the lower payment reporting threshold to boost compliance for taxpayers and third-party organizations. But in December of 2022, the IRS announced that it had heard "a number of concerns regarding the timeline of implementation of these changes" and decided to delay them.
The official statement allows third-party payment organizations (or what it calls third-party settlement organizations) to have more time to make a more effective transition. This gives these organizations more time to retune their internal systems and comply with the new regulations. This is delayed until the next tax season. The IRS also gives taxpayers more time to understand the new rules.
If you're self-employed and the number of payments you received from a given third-party payment organization was lower than 200, and the total amount of payments you received from that payment app was lower than $20,000, that organization won't be sending a 1099-K to the IRS to report the payments you received. This means you won't receive the copy of the 1099-K that those organizations are supposed to send to you.
But if you did have 200 or more transactions or received $20K or more, the third-party payment organization that processed those transactions is required by the IRS to report them on a 1099-K and send them to the IRS by January 31 of 2023. If an organization sent them out early, you might have received a copy of a 1099-K that reports payments above the $600 threshold, rather than the $20,000 one. If so, you can disregard them after this recent announcement.
There’s also a chance that you received over $20K or had more than 200 transactions with a third-party payment organization, but you didn’t get a 1099-K. The organization may have accidentally missed sending it to you, or it may have been lost in the mail, but this does not mean you don't need to pay tax on that income. You can simply rely on your bank statements as a record of the income you received from, in order to accurately fill out your Schedule C in your annual tax filing.
Even easier, you can use FlyFin to track all your income and expenses automatically in minutes. A.I. also finds every possible tax deduction and offers unlimited advice from a team of CPAs with a combined 100+ years of experience in freelance taxes.
FlyFin CPAs can also answer any question you have about the new change in 1099-K reporting, or any other question, supporting freelancers, independent contractors and small businesses with 24/7 expertise right in the app.
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