What are the major changes the IRS made in 1099 K reporting? Are you operating a business using e-commerce platforms? Do you know the new rule implemented by the IRS? Yes, the IRS has brought a new rule to report the transactions related to goods and services on the information return forms. This acct will be enacted soon by the IRS.
Getting confused? Don’t worry! We will let you know about the major changes the IRS made in 1099 K reporting. Moreover, we also provide information about why the change occurred in Form 1099 K.
What do you need to know about the updated 1099 K?
As we know earlier, the IRS is updating its reporting and compliance regulations to improve the accuracy of reporting and tax transparency. The IRS has made recent changes in 1099 K Tax Form. This change has occurred accordingly to the American Rescue Plan Act 2021. The law states that the minimum threshold has been lowered for Form 1099 K under section 9674 of the Act. As per the IRS rules, this law will be effective after December 31st, 2021. This means the impact of third-party transactions will be in 2023 filings.
Revised Form 1099 K threshold
For the past few years, the PSE’s used to report payment card transactions of at least $20,000 or more with a transaction limit of 200 in a calendar year. The PSE is responsible to issue 1099 K Form to the recipient and to the IRS within the deadline. Additionally, the transactions which are not related to good and services are exempted in reporting. According to the new update, the IRS requires PSE to report a single transaction of $600 or more made in a calendar year through payment cards to issue 1099 K Form. Furthermore, it also included reporting the transactions related to goods and services.
Why is the change made in the 1099 K Tax Form?
As per the study conducted through IRS Tax Gap, more than 80% of the gig economy workers earn less than $20,000 in a calendar year. This means the employer who pays less than $20,000 through payment cards doesn’t require a 1099 K. It leads to thousands of gig workers underreporting their income. Moreover, NEC was separated from 1099 MISC to the new 1099 NEC under CARE Act. Due to this separation, some employees were losing unemployment benefits. By implementing this new rule, the IRS and the government can bring new changes to the gig economy by introducing appropriate regulations.
What does this change mean for 1099 contractors?
If you are a contractor who uses e-commerce platforms like eBay to sell or re-sell products online, then you may receive a 1099 K Form. An individual may receive IRS Form 1099 K from the payment settlement entity is involved between you and the e-commerce organization. As per the new rule, the contractor will receive the tax form for every transaction made through a payment card throughout the year. Furthermore, you must report the income on the tax return to the Internal Revenue Service.
How does the new 1099 K threshold affect the previous filing?
If in case, you are a Payment Settlement Entity then ensure to audit the incomes generated through payment cards online. For instance, if you are a contractor who sells products on app-based Organizations like Esty, then you need to ask for a Form 1099 K from the PSE. Previously, the transactions related to goods using payment cards or third-party networks are not included in reporting on 1099 K. But after enactment of the new rule, every PSE must issue Federal 1099 K when the transactions made are related to goods or services.
How to streamline your 1099 K filing?
Given below are the efficient methods to file Form 1099 K:
- Report the gross payments volume of goods or services of $600 or more in a calendar year as the same in the tax form.
- Withhold taxes from the recipient if the recipient doesn’t provide TIN. Make sure to report the same on the tax form.
Ensure to follow the above rules after the date of enactment of the American Rescue Plan Act.
Finally, Form 1099 online provides an e-filing service for all 1099 Forms. We are an IRS-authorized e-file provider where the information is up-to-date. With an updated filing instruction the filers can experience the ease of submitting information returns to the IRS with us.