A simple guide to understand the basics of Form 1099-K, new threshold and how to eFile Form 1099-K easily.
The financial ecosystem has evolved globally.
With the rise of the third-party payments complex, reporting certain payment information on 1099 forms can be slightly confusing.
We have to consider factors like the online payments ecosystem and online merchant payments framework that rely on third parties for processing the payments, which impacts what should be reported on Form 1099-K.
The reality is that the payment dynamics have changed.
Payment facilitators, payment processors, third-party payment settlement entities, and authorized payment enablers have taken center stage with the evolution of the payments infrastructure.
The IRS has observed a trend in such payments. It has realized that the 1099 reportable information requirements need to catch up with the dynamism (and the inconsistencies that may come with) of the payments infrastructure that we’re dealing with today.
This is why Form 1099-K underwent massive changes, which will be effective from the 2022 tax year.
What are those changes? And how were the changes implemented?
Would these changes impact your current reportable payment information?
Let’s answer all such questions as we discuss various aspects of Form 1099-K.
What Is Form 1099-K?
Form 1099-K is an IRS information return that specifically deals with Payment Card and Third-Party Network Transactions. With an aim to improve the voluntary tax compliance, the IRS has created Form 1099-K to help payment settlement entities or PSEs report the payment transaction information made to the participating payees in a tax year.
A payment settlement entity could be a third-party payment entity like Venmo or Google Pay. A payment card company is a credit card/debit company like VISA or Master Card.
If you’re a PSE, and you’ve made gross payments totaling $600 or more in settlement of a third-party network and payment card transaction in a calendar year, then you need to report all such transactions on Form 1099-K, and file the 1099-K form with the IRS.
In such a case, the participating payee could be an online business or a retail merchant.
What Has Changed With Form 1099-K In 2022?
Currently, the IRS requires PSEs to report with and file Form 1099-K if the PSE has made total gross payments totaling $600 or more in a tax year.
However, if you’ve been issuing 1099-K forms to your payees, then you just know that Form 1099-K reporting was not always like this.
Previously, the IRS instructed PSEs to file a Form 1099-K only if:
· The gross total payments exceed $20,000 AND
· The transaction limit exceeds 200
The reporting instructions created a lot of room for inconsistencies and malpractices, which lead to hidden incomes and a widening tax gap.
Considering all such factors, the IRS decided to reduce the gross payments threshold from $20,000 to $600, and removed the transaction volume barrier.
So, the new regime requires PSEs to prepare and file Form 1099-K only if the gross total payments made in settlement of third-party network and payment card transactions exceed $600.The update comes after The American Rescue Plan Act (ARPA) of 2021 was signed into law, which paid special attention to inconsistencies within the 1099 tax information reporting and income reporting.
What Should You Report On Form 1099-K?
For Calendar Years Before 2022:
As specified by the Housing Assistance Tax Act of 2008 to report, PSEs need to file a Form 1099-K only IF:
· The gross total payments made in settlement of third-party network and payment card transactions to participating payees is $20,000 or greater, AND
· If the reportable transactions limit is 200 or higher.
For Calendar Years After 2021:
As specified by The American Rescue Plan Act (ARPA) of 2021, PSEs need to file a Form 1099-K only IF:
· The gross total payments made in settlement of third-party network and payment card transactions to participating payees is $600 or higher.
As you can see, there are no limits or reservations on the transaction limit.
How To eFile Form 1099-K?
Prepare, validate, and eFile Form 1099-K easily with Tax1099 – an authorized agent of the IRS.
Step 2: Import your tax-sensitized data using any of the available integrations
Step 3: Validate TIN and legal name with real-time TIN Matching from Tax1099
Step 4: Schedule your 1099-K forms online for the IRS due date
Step 5: eFile Form 1099-K
Explore more about Tax1099.com
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