Are You Ready for 1099-K Reporting in 2023?
Attention businesses: Do you receive customer payments via third-party apps such as PayPal, Zelle, or Venmo for your business? Unfortunately, due to the changes to 1099-K reporting, you may have to report more in 2023.
The 1099-K threshold will drop to $600 starting in 2022. Unfortunately, this means that many businesses can expect to see a considerable increase in 1099-Ks in 2023. Here are some things you can do to prepare.
What's form 1099-K?
The Form 1099-K can be used to report transactions via payment settlement entities (PSE). You will receive many Forms 1099-K's if your business accepts credit, debit, and third-party payment networks like Paypal and Venmo.
What's changing?
The threshold will drop to $600 starting in 2022. Unfortunately, you may be subject to tax on those transactions if you earn more than $600 per annum (no minimum transaction requirements) through third-party peer-to-peer payment apps. Check with your tax accountant on how it may impact you or your business.
Previous rules required that each PSE send a Form 1099-K to your business by January 31 st if you received more than $20,000 in gross payments volume or more than 200 separate payments within a calendar year.
Which organizations are third parties?
These companies will send you a 1099-K form if your company uses them.
PayPal
Zelle
Square
Stripe
Venmo
Lyft, Uber, and other third-party organizations are also considered, so you'll receive a 1099-K if you have gigs with any of these companies.
What does mean for your business and you?
This change will result in many more businesses receiving 1099-Ks, and gig workers will get forms for the first time.
You should prepare yourself for the changes by:
Review your gig activities
You should keep accurate records of all payments
Separate gross receipts from a PSE are income from personal payments. (Example: Splitting a check at dinner). It is wise to keep individual accounts for personal and business expenses since PSEs can't distinguish the two.
Document all deductions
Key Takeaways
Higher taxes could be imposed on individuals who sell items via selling platforms such as Etsy or Ebay. This tax can be reduced by tracking the price of items sold.
Small businesses will be required to include 1099-K's with year-end documents.
The form does NOT include credit, fees, discounts, or returns. Individuals will need to track and expense these items themselves.
More tax filers might require additional income
Although there has been talk about raising the threshold to $20,000, Congress is interested, but it has yet to be raised. If your reporting obligations change, we will keep you informed.
