September 29, 2022
As our kids settle into a new academic year, everyone who collects transactions and fees through third-party payment processors (think Venmo, PayPal) also face some important changes. Remember the American Rescue Plan of 2021? One of the many provisions buried in the plan is a requirement for all third-party payment processors to report payments received for goods and services in excess of $600.
The reporting requirement isn’t actually new – but prior to January 1, 2022, companies were only required to send an IRS Form 1099-K for gross payments exceeding $20,000 and more than 200 transactions within a calendar year. Those parameters limited the impact of the reporting requirement materially – now, with the expanded requirement and lower threshold of $600 per year, many more gig works, independent contractors, and entrepreneurs (anyone with a “side hustle”) will be affected. If you fall into this camp, you’ll receive a 1099-K Payment Card and Third-Party Network Transactions Form, and that income will be reported to the IRS.
Who doesn’t have to worry? The requirement doesn’t apply to transactions between friends and family, so go ahead and reimburse your siblings for that pizza dinner. But once you start selling goods (even old clothes or collectables on eBay) or services, the reporting requirement kicks in. From a practical standpoint, it means yet more recordkeeping by both third-party payment processors and taxpayers alike (and potentially a surprise or two come tax preparation season).
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