Tax law changes often cause filing problems for taxpayers when they try to determine how they are affected. Things can get even more complicated when the Internal Revenue Service steps in with its take on a confusing law.
That’s exactly what’s happened and still happening with Form 1099-K, Payment Card and Third Party Network Transactions. This tax form is supposed to be issued to individuals who get money via a third party processor for goods or services the taxpayers provided customers.
1099-K history: For more than a decade, online apps and marketplaces (think PayPal, Venmo, CashApp, eBay, Etsy, Uber, Lyft, Airbnb, and more) issued Form 1099-Ks when the seller made $20,000 in total earnings over more than 200 transactions in a tax year.
Provisions in the American Rescue Plan Act (ARPA) of 2021 changed the 1099-K trigger. ARPA dramatically lowered the earnings amount requiring a 1099-K to $600, regardless of the number transactions. This new reporting law was supposed to take effect for the 2022 tax year.
Many feared that the lower level would result in a lot of people would getting 1099-K forms for transactions that aren’t taxable.
Tax-exempt situations include personal financial exchanges, such as resale of used goods at a loss or private payments between friends. Taxpayers would have to convince the IRS why they didn’t owe tax on the amount on any 1099-K issued in these cases.
This concern, along with general confusion among taxpayers and worries by companies about upgrading their systems to meet the issuance of many more forms prompted the IRS to delay implementation of the new, lower earnings 1099-K law.
Filing season confusion continues: So for 2003 earnings, the IRS opted to leave the old $20,000 total earnings and 200 transactions standard in place.
Now, with the filing season for that year’s tax returns in full swing, some taxpayers still have questions. Others are acting on wrong information.
To help these filers, the IRS has created a special online page to debunk some common 1099-K myths.
Here are three of the more pervasive 1099-K myths.
- People will get a Form 1099-K from friends and family sending them personal payments. No, they won’t. Generally, the default for payment apps is personal payments unless the sender designates that they’re purchasing goods or services, or it is designated a business account. So payments like rent, dinner, travel, and other gifts or reimbursements, no matter the amount, are not required to be reported.
- Taxpayers owe taxes on the gross amount reported on the Form 1099-K. Not necessarily. The statement provides the gross, or total amount of payments individuals got per app or marketplace. But because a payment is reported on a Form 1099-K does not mean it is taxable. Taxpayers will need to use the form and other records to determine their actual tax liability when they file their tax return.
- If you don’t get a Form 1099-K, you don’t have to report income. Very wrong, and potentially costly if the IRS finds you didn’t include all your income on your tax return. Federal tax law says all income is taxable unless it is specifically excluded by law. Taxpayers should report any profits from selling goods or services, regardless of if they receive a Form 1099-K or any other tax statement.
Again, you can check out the full list of 1099-K myths and the real scoop on IRS.gov.
The IRS also has issued a fact sheet on what to do if you get a 1099-K this year. You also might want to peruse the IRS’ 1099-K FAQs.
You also might find these items of interest:
- What to do if your 1099-K is not OK
- The many versions of IRS Form 1099
- 1099-K lower reporting threshold delayed again, this time to 2025
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