The IRS gave payment processors a reprieve, announcing on Friday: “third-party settlement organizations will not be required to report tax year 2022 transactions on a Form 1099-K to the IRS or the payee for the lower, $600 threshold amount enacted as part of the American Rescue Plan of 2021.”
Included are companies that process payments on people’s behalf, including PayPal, eBay, Amazon, and Etsy.
The news may also feel like a reprieve for sellers, but they should not take it as permission to forgo paying the taxes they owe. In the big picture, however, it does spell relief for those seeking more time to get their house in order.
For example, funds coming into a business should be kept in a separate account from the one used for personal transactions. And those with more than one business should have a separate account for each one. Otherwise, that Form 1099-K reporting a single total could cause you headaches.
It’s important to keep good records and be prepared to explain to the IRS discrepancies between a Schedule C or Form 1065 and the amounts reported on Form 1099-K. Such discrepancies are built into the form, since the amount reported does not factor in returns, for example. (Check out Barbara Weltman’s column from 2021, “What You Need to Know about 1099-K.”)
Some states already require payment processors to file 1099-Ks to them for amounts as low as $600, as residents of Massachusetts, Vermont, and California have discovered.
The IRS is making the change so late in the game, we wonder how quickly payment services will be able to pivot – we have questions in to some of them, including PayPal, but the eve of the Christmas holiday weekend is not an ideal time to get answers about a major change impacting their reporting requirements. (They may not even know yet whether they can revert back to the higher threshold.) (See update below.)
Remember – the IRS is only delaying the lower-threshold requirement, so proceed in 2023 as if $600 is the trigger for next year’s transactions – unless Congress acts next year.
Update 12/23/2022: eBay announced it’s prepared for the shift, posting an announcement on Friday that explained how it would handle 1099-Ks: “…only sellers who: 1) exceed the previous threshold of $20,000 and 200 transactions, 2) that were subject to backup withholding or, 3) whose states of residence have a lower reporting threshold will receive a Form 1099-K…”
eBay also thanked members of its grassroots Main Street community for speaking out about the issue and urged Congress to take action to permanently change the reporting requirements “to prevent mass confusion and overreporting of income in the future.”