Changes to what businesses must report to the IRS were supposed to take effect this tax year, meaning more taxpayers would have received Form 1099-K than in previous years. After much debate on this topic, the IRS decided to delay these new requirements for one year. However, if you were subject to backup withholding or live in a state with a lower reporting threshold, you may still receive Form 1099-K for tax year 2022.
If you receive a 1099-K by 2022, don’t panic. For some, the arrival of this unexpected tax form can be confusing and stressful, but we’re here to help you report it correctly on your tax return.
What is Form 1099-K?
The 1099-K form records transactions from credit cards and third-party payment networks like PayPal, Venmo, or Square. Once you reach a certain threshold in payments received from these platforms, the third-party app should send you a 1099-K. They will also send copies of this 1099-K to the IRS and the state.
Why did I receive a 1099-K?
If you received a 1099-K this year, it means you had at least $600 in payment transactions through one of these third-party applications. This means you could receive more than one 1099-K; For example, if you reach the $600 threshold on both Venmo and Cash App, you’ll receive a 1099-K from both companies.
This $600 threshold is new for tax year 2022. Previously, you had to have made at least 200 transactions totaling at least $20,000 to receive a 1099-K. So, it’s a big change!
Does a 1099-K mean I owe the IRS money?
Not necessarily. A 1099-K does not differentiate between business transactions and personal transactions; is simply an informative document that shows all transactions made through the payment application. That means it’s up to you to decide if those transactions are taxable.
You only owe taxes on the net earnings you earned. Here are some examples of taxable transactions:
1. You sold a personal or collectible item for more than what you originally paid for and collected your payment through Venmo.
2. You sold produce at a farmers market as a sideline and collected payments from customers through an app like Square.
3. You rented a room in your home and collected payments and fees from tenants through a third-party payment application such as PayPal.
4. You crochet as a hobby and occasionally sell items you’ve made online through a site like eBay or Etsy.
You do not owe tax on personal transactions or items sold at a loss. Here are some examples of non-taxable transactions that you would not need to report:
1. You sold a personal item for less than what you originally paid. For example, he sold his sofa on Facebook Marketplace for $250, but he originally paid $600 for the sofa several years ago.
2. Your roommates reimbursed you through an app like Venmo.
3. You received any other personal transactions from friends or family through a third-party payment application.
Don’t worry if this sounds confusing. TaxAct will help you tell the difference between taxable and nontaxable payments by asking you questions about what you sold.
How do I file a 1099-K?
If you choose to file electronically with TaxAct, we will ask you for more information about the transactions on your Form 1099-K. Knowing what the payments were for helps us determine if you owe tax on that income.
First, we’ll ask if you received any 1099-K income from self-employment or side jobs, sales of personal items, rentals, farming, or other nonprofit activities. From there, depending on your answers, we’ll walk you through how to correctly report that income and fill out the necessary tax forms for you.
We will also tell you if your answers indicate that only some (or none) of the transactions in your 1099-K were taxable. If that is the case, you will not need to report that income.
After that, you will be done submitting your Form 1099-K!
main conclusions
If you receive an unexpected Form 1099-K this year, it’s essential to know what it’s for and how to use it. Filing with TaxAct simplifies the process: we’ll guide you step by step so you can file your return quickly and safely.
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