What to know about changing 1099-K tax reports for Venmo, PayPal

Hispanological | E + | Getty Images

If you are worried about getting a tax form from payment apps like Venmo or PayPalyou’re now less likely to get one by 2022, thanks to an IRS change.

The agency on Friday announced a one-year delay to a new tax reporting rule, requiring payment services to issue Form 1099-K for business transfers of more than $600, and many tax experts have applauded the change.

Prior to 2022, taxpayers and the IRS received 1099-Ks when payments crossed a threshold of more than 200 transactions for an aggregate value of more than $20,000.

While a single transfer starting in 2022 could have triggered the form, the IRS has delayed the deadline by a year “to help smooth the transition,” Acting IRS Commissioner Doug O’Donnell said in a communicated

More from Personal Finance:
IRS Delays Tax Reporting Change for 1099-K to Venmo, Paypal Business Payments
From ‘silent resignation’ to ‘loud layoffs’, will career trends continue in 2023?
Overseas travel to increase in 2023 as Americans travel to Asia and Europe

“It’s very welcome,” said Albert Campo, a certified public accountant and president of AJC Accounting Services in Manalapan, New Jersey.

He said the one-year delay for the 1099-K federal tax reporting change gives taxpayers more time to prepare. But “there definitely needs to be more guidance from the IRS,” Campo said.

“The IRS decided a transition period was necessary”

While the agency says personal transfers won’t trigger 1099-Ks, experts say some filers may receive the form in error, reporting personal payments as income, which can be difficult to correct.

“With little guidance available to the public and a significant increase in the burden on electronic payment networks, the IRS decided that a transition period was necessary,” National Taxpayer Advocate Erin Collins said in a post on blog tuesday

He said the postponement should give taxpayers more time to “familiarize themselves with the rules” and “correctly identify personal and business payments” to avoid future 1099-K reporting errors.

From quiet exits to loud layoffs: Here are the career trends that made a splash in 2022

While many tax professionals welcomed Friday’s announcement, the American Institute of Certified Public Accountants is still pushing Congress for reform.

“While the AICPA is grateful to the commissioner for this reprieve, we urge Congress to strongly consider the above recommendations to raise the threshold, possibly in line with current cost-of-living levels,” said the president and counsel group representative Barry Melancon in a statement Friday.

You must report business income, even without a 1099-K

Regardless of whether you receive a 1099-K, you still need to report business income on your tax return, Collins said, urging filers to track income from all sources and maintain personal and business accounts separate for paid applications.

Also, the delay in 1099-K reporting only applies to your federal taxes, Campo said, since some states already have lower reporting thresholds.

If you’ve started a side business, it’s critical to save your expense receipts for the deductions you make to reduce your tax liability, which you’ll need in the event of an audit. “The IRS will eventually pick up on these things,” he said.

Leave a Reply

Your email address will not be published. Required fields are marked *