What to know about the latest 1099-K tax reporting change for Venmo, PayPal
- The IRS has issued a one-year delay for the 1099-K tax reporting rule, requiring payment services to issue the form for business transfers of more than $600.
- "It's massively welcome," said Albert Campo, a certified public accountant and president of AJC Accounting Services.
- However, regardless of whether you receive 1099-Ks, you still must report business income on your tax return.
If you're worried about getting a tax form from payment apps like Venmo or PayPal, you're now less likely to receive one for 2022 — thanks to a change from the IRS.
The agency on Friday announced a one-year delay for a new tax reporting rule, requiring payment services to issue Form 1099-K for business transfers over $600, and many tax experts have applauded the change.
Before 2022, taxpayers and the IRS received 1099-Ks when payments crossed a threshold of more than 200 transactions worth an aggregate above $20,000.
While a single transfer from 2022 could have triggered the form, the IRS has delayed the timeline by one year "to help smooth the transition," acting IRS commissioner Doug O'Donnell said in a statement.
More from Personal Finance:
IRS delays tax reporting change for 1099-K on Venmo, Paypal business payments
From 'quiet quitting' to 'loud layoffs,' will career trends continue in 2023?
Travel abroad is set to surge in 2023 as Americans eye trips to Asia, Europe
"It's massively welcome," said Albert Campo, a certified public accountant and president of AJC Accounting Services in Manalapan, New Jersey.
He said the one-year delay for the federal 1099-K tax reporting change gives taxpayers more time to prepare. But "there definitely needs to be more guidance from the IRS," Campo said.
'The IRS decided a transition period was necessary'
While the agency says personal transfers won't trigger 1099-Ks, experts say some filers may receive the form by mistake, reporting personal payments as income, which may be difficult to correct.
"With little guidance available to the public and a significant increase in the burden on the electronic payment networks, the IRS decided a transition period was necessary," national taxpayer advocate Erin Collins said in a blog post on Tuesday.
She said the postponement should give taxpayers more time to "familiarize themselves with the rules" and "properly identify personal versus business payments" to avoid future 1099-K reporting errors.
Although many tax professionals welcomed Friday's announcement, the American Institute of Certified Public Accountants is still pushing Congress for reform.
"While the AICPA is grateful to the commissioner for this reprieve, we urge Congress to strongly consider previous recommendations to raise the threshold, possibly in accordance with the present-day cost-of-living levels," group president and CEO Barry Melancon said in a statement on Friday.
You must report business income, even with no 1099-K
Regardless of whether you receive 1099-Ks, you still must report business income on your tax return, Collins said, urging filers to track earnings from all sources and keep personal and business accounts separate for payment apps.
What's more, the 1099-K reporting delay only applies to your federal taxes, Campo said, as some states already have lower reporting thresholds.
If you've started a side business, it's critical to save your expense receipts for any deductions you take to reduce your tax liability, which you'll need in the case of an audit. "The IRS is eventually going to pick up on these things," he said.
Harvard psychologist: If you use any of these 9 phrases, 'you're more emotionally secure than most'
37-year-old owed $5,000 in tickets—now he's sold more than $1 billion worth of parking reservations
34-year-old makes up to $167 an hour nannying: I could work just 2 months a year and 'be fine'
Elon Musk's private jet has landed in Beijing
6 remote and hybrid companies that help pay for employees' vacations—and are all hiring now