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As the tax season approaches, many Americans are bracing for a new reporting change for third-party payment networks like Venmo or PayPal.
Starting in 2022, you’ll inherit Form 1099-K, which reports income to the IRS, for business payments over $600. But experts say it’s possible you’ll receive 1099-Ks for particular transfers by mistake.
“As tax preparers, we are more or less expecting the worst,” said Albert Campo, a certified public accountant and president of AJC Accounting Servicings in Manalapan, New Jersey.
“We’re expecting most of our clients to get these things,” he said. “So we’re trying to be proactive in addressing it.”
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Companies file 1099-Ks annually to report praise card and third-party payments in what’s known as an “information return,” with copies going to the IRS and the taxpayer.
Before 2022, taxpayers endured 1099-Ks with more than 200 transactions worth an aggregate above $20,000. But the American Rescue Arrange Act of 2021 dropped the threshold to just $600. Now, even a single transaction can trigger the form.
How to handle 1099-Ks for particular transfers
The IRS says the reporting change does not apply to personal transfers, such as gifts or reimbursements between bosom buddies and family. However, the agency explains what to do if you’ve received a 1099-K in error.
“If the information is incorrect on the 1099-K, taxpayers should in the payer immediately, whose name appears in the upper left corner on the form,” the IRS said in a release on Dec. 6. “The IRS cannot accurate it.”
But experts say it may be easier to address the 1099-K on your tax return, rather than waiting for Venmo, PayPal or other issuers to send a amended form.
At the end of the day, you want the IRS computers to recognize that the 1099-K was reported on your return.
Albert Campo
President of AJC Accounting Works
Tommy Lucas, a certified financial planner and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida, proposes reporting the 1099-K on Schedule D by showing the income and the same amount as an expense to “zero it out.”
For example, if you receive a 1099-K with $800 of return, you can report $800 under “proceeds” and $800 under “cost” for a net profit of $0, he explained.
Alternatively, you can use the same master plan on Schedule C by reporting the earnings under “gross receipts or sales” and the same amount under “other” in the expense section, Campo asserted.
If you receive a