Ahead of Sage Transform 2022, we discuss changes to the way small businesses and gig economy workers have to report third-party payments.
Many small businesses and gig economy workers enjoy the convenience of using third-party payment processors to obtain payments for goods and services. It eliminates the need for exorbitant processing fees from credit card companies and financial institutions. However, with the upcoming filing season, the IRS changes the way these payments are reported with Form 1099-K, which may outweigh the benefits over the conveniences. Small businesses need to prepare for the changes to their reporting and we have the information your accounting firm needs to get them prepared.
What is Form 1099-K?
Form 1099-K is an IRS form that deals with third-party payment transactions. All income from these sources in the calendar year must be recorded, documented, and reported to the IRS. You are required to report with Form 1099-K if you received payments from:
- Payment card transactions, which the IRS defines as “…any transaction in which a payment card, or any account number or other identifying data associated with a payment card is accepted as payment.”
- The settlement of third-party payment network transactions, which the IRS defines as “…any transaction that is settled through a third-party payment network, but only after the total amount of such transactions exceeds the minimum reporting thresholds.”
Who Receives Form 1099-K?
Anyone who receives payments through the following will likely receive a 1099-K if they meet the payment threshold:
- Online Marketplaces (e.g. Etsy, Poshmark, Amazon)
- Gig Economy Platforms (Uber, Grubhub, Instacart)
- Credit/Debit Card Processors(JP Morgan, Chase, Wells Fargo)
- Peer-To-Peer Payment Servicers (Venmo, CashApp, Zelle)
Because of real-world factors such as the pandemic, climate change, and global recession, small businesses and gig-economy platforms have been on the rise, thanks to the advantages(creating your own schedule, being your own boss, following more creative endeavors, financial gain, etc.). But recent changes in how these payments are reported may throw a wrench in the advantages.
1099-K Changes Explained
The changes with 1099-K began when the American Rescue Plan Act was signed into law in 2021. It’s aimed at providing child care credit and other relief to thousands of Americans who need it. While it does that, it also clarifies the definition of those payments, which are only for goods or service transactions, settled through a third-party payment network. With that definition also comes changes to the way those transactions are reported.
Previously, third-party payments had to be reported only if the gross transaction value totaled $20,000 or more and had a minimum volume threshold of 200 or more transactions. The update to the reporting now requires payments of more than $600 reported with no volume threshold. This means that most small businesses and gig economy workers will be hit with changes to 1099-K if they haven’t been in the past. Our blog, Form 1099-K Changes 2022 – What Do They Mean For Your Business, highlights these changes in greater detail.
Tax1099 Works With Your Accounting Processes
With the help of Tax1099, preparing for the onslaught of 1099-K questions and concerns from clients issuing them doesn’t have to be daunting. Easily onboard your vendors with our W9 collection and validate their TINs using Tax1099’s Real-Time TIN Matching ahead of the filing season. Avoid paying for multiple corrections by using our Scheduled eFiling Service, which allows you to pre-file and send copies of 1099-Ks to customers ahead of the deadline, which means if you have an error to report between the date of the scheduled eFiling and the day it is submitted to the IRS, you can correct that form and submit before the information is reported to the IRS. These steps avoid many headaches with corrections and B-notices due to inaccurate TINs and information.
For your other filing needs, we offer integrations and data transfer tools that work with many accounting software suites, including Sage Intacct. Sage’s super simple setup and maintenance, helps businesses and accounting firms automate their workflows, send and track invoices automatically, manage payments quickly, track expenses automatically, and manage cash flow confidently. Export your 1099 report from Sage and import the data into Tax1099 with our authorized integration.
Learn more about what Tax1099 can do for your business when you attend the Sage Transform Conference in person from October 10-17, 2022.
We’re a proud sponsor for this year’s event. Our sales team will be on hand to further explain how our integration works with Sage Intacct and how Tax1099 can help you file 1099s, W2s, and other forms.