What you need to know about next year's $600 reporting rule from the IRS

The implementation of the Internal Revenue Service's "$600 rule" is being postponed until next year, giving affected taxpayers one more year before they may start receiving tax forms triggered by the new lower reporting threshold.

Essentially, if you use a third-party payment platform, like PayPal, Venmo or Cash App, to collect payments for your side gig or business, you must report payments of at least $600. To ensure this reporting — which is a deviation from an older rule with a higher threshold — third-party payment platforms will be required to send eligible business account holders a Form 1099-K to disclose the income.

At the center of some of the attention around the new rule is the question of how you know if you'll need to pay taxes on third-party payment app transactions. It's important to note that the IRS has always expected individuals to report all taxable income, which includes money you make from selling goods and services as a business.

Typically, this information gets reported using an IRS tax form called the 1099-K. The Form 1099-K is a reporting form meant specifically for transactions made through third-party network transaction platforms — like Venmo, Cash App and PayPal.

Third-party payment services typically send this form to taxpayers (and a copy to the IRS) who cross the threshold for triggering the tax form. Under the old rule, this threshold was earnings of at least $20,000 or receiving 200 or more transactions, whichever comes first.

This "old rule" was supposed to have been dissolved at the end of last year. But to give affected parties time to prepare for the transition, reporting will continue to go by the "old rule" through December 31, 2023.

So if your business or side gig earned at least $20,000 or received at least 200 transactions in 2022 through third-party payment platforms, you can expect to receive a Form 1099-K for tax purposes by January 31, 2023. Even if you didn't hit these thresholds and don't expect to receive a 1099-K, you must still report all taxable income.

Under the new rules set forth by the IRS, if you got paid more than $600 for the transaction of goods and services through third-party payment platforms, you will receive a 1099-K for reporting the income. With this new, lower threshold for triggering the tax form, more individuals with side hustles, small businesses and gigs may be reporting the income they earn.

The expected uptick in reporting volume was partly responsible for the decision to postpone the new "$600 rule." There were concerns that many taxpayers would unexpectedly receive 1099-K forms and would need additional time to familiarize themselves with the rules. Plus, taxpayers needed more time to separate personal versus business payments to prevent misidentified payments from being reported on the form.

For the 2022 tax year, taxpayers will follow guidelines set forth by the old IRS rule — you should receive a 1099-K form if you earned at least $20,000 or received at least 200 transactions. You won't receive tax forms triggered by the "$600 rule" until next year.

Again, this rule is aimed at individuals who run a side hustle, small business or do part-time work and receive payments through a business account on third-party payment platforms. So if you don't have a business account and you're just sending money to friends for a restaurant bill or a vacation, this won't apply to you and your transactions won't trigger a 1099-K form.

Again, keep in mind that even if you've been receiving transactions as a business but didn't earn enough to trigger the 1099-K form, you must still be prepared to report your taxable income.

It's generally recommended that business owners — and others who earn income that doesn't get taxed upfront — put away around 20% of their earnings for tax purposes. This is to ensure that you haven't used up all of your income before tax time and won't feel like you need to scrape some cash together to pay your bill.

Of course, filintg taxes can be intimidating but it's always better to avoid waiting until the last minute to start gathering documents and filling out forms. TurboTax offers step-by-step guidance, live support and a final review from a CPA. Otherwise, you can always have a tax expert prepare and sign everything for you.

H&R Block is another popular choice with similar offerings, but it also has many physical locations nationwide so you can receive in-person assistance.

Be sure to pay for your tax software or accountant using a business credit card, like the Ink Business Unlimited® Credit Card or the The American Express Blue Business Cash™ Card , so you can get rewarded for the business expense. The Ink Business card lets you earn 1.5% cash back on all business-related expenses and the Blue Business Cash card gives you 2% cash back on eligible business purchases.

By lowering the threshold for triggering tax Form 1099-K, more gig workers and small business owners using third-party payment platforms should expect to receive this form come next year's tax season. In the meantime, the old rule remains in place through December 31, 2023.

Keep in mind that not receiving Form 1099-K under the old rule doesn't mean you don't have to file taxes on your income. You must still report all taxable income to the IRS. For more information, visit the IRS website.

Catch up on Select's in-depth coverage of personal finance, tech and tools, wellness and more, and follow us on Facebook, Instagram and Twitter to stay up to date.

For rates and fees of the Blue Business Cash^TM Card from American Express, click here.