If you’re having tax problems I feel bad for you, son; we got 1099-K problems and a surprise might be one.
Not exactly how the lyrics to 99 Problems go, but you catch my drift. Millions of taxpayers are expected to receive a surprise Form 1099-K by January 31, 2023. Tax pros are unhappy about this to say the least, and as it turns out the IRS isn’t too excited either.
Under the American Rescue Plan Act of 2021 (P.L. 117-2), taxpayers with transactions that exceed $600 in a year (with no minimum transactions), effective for payments beginning in 2022, must be issued a Form 1099-K. Prior to the 2022 change, companies were only required to file a Form 1099-K if the payee was paid more than $20,000 or had more than 200 transactions during the year for goods or services.
Tax Pros' Concerns
A key concern we’re hearing from tax pros right now is the all-too real likelihood that personal payments could be incorrectly reported as taxable transactions.
“What do we do if 1099-K is wrong? Maybe Venmo or Paypal reported a gift or money transfer,” Sharon Kreider, CPA, said in a recent tweet. “The IRS says to contact the issuers of the 1099-K: brilliant! Call Paypal for a correction in January or February? The new $600 amount for Form 1099-K will be troublesome,” she added.
The IRS’s Form 1099-K FAQS page, as updated last October, tells taxpayers that transferring money between individuals for splitting costs like meals, or gifts, allowances, etc., are not payments that should trigger the 1099-K. If a taxpayer does receive a Form 1099-K that they believe is an error, they should contact the filer or payment settlement entity.
Otherwise, “if you cannot get the form corrected, you may attach an explanation of the error to your tax return and report your income correctly,” the IRS says. It’s fine. Everything’s fine.
Looking ahead, there is a bipartisan push on Capitol Hill to either significantly increase the Form 1099-K reporting threshold or restore the previous $20,000/200 transactions threshold in place prior to 2022. Whether we see anything to that effect in a year-end tax bill remains to be seen.
Stay updated with more breaking tax-related developments by subscribing to Tax Bytes with Jessica Jeane, J.D.