June 9, 2023
1099-K Form | 1099-K | Form 1099-K | 1099 Form K | PayPal 1099K | 1099 K | 1099 K Requirement | What is 1099-K
1099-K Form | 1099-K | Form 1099-K | 1099 Form K | PayPal 1099K | 1099 K | 1099 K Requirement | What is 1099-K
Everything you need to know
Form 1099-K is not a new form. Recently it has received much attention because of a recent rule change. Recent change would have caused many more people would get this form in 2023.
However, the IRS announced on December 23, 2022, the new rule will be delayed. So, what does this mean for your 2022 taxes (filed in 2023)?
Here’s what we know:
- In general, the rules for sending Form 1099-K for the tax year 2022 are seen below;
- $600 rule passed in 2021 – In 2021, IRS dropped the 1099-K requirements for 2022 from $20,000 (and 200 transactions) to $600 from any platform. This applies to payments for goods and services but could have included personal payments from apps such as Venmo, Paypal, Etsy, and Ticketmaster, to name a few.
- $600 rule delayed on Dec. 2022 – On December 23, IRS announced that the new $600 rule would be delayed and previous regulations would apply for 2022 returns. ($20,000 or more in payments or 200 or more transactions from any one platform related to goods or services).
- Note: Some businesses may send a 1099-K based on the projected rules. The filer may have prepared the 1099-K before the rule was delayed, or as a policy they may send Form 1099-K regardless of the amount you received.
What is a 1099-K?
The 1099-K form reports payments and transactions from online platforms, apps, or payment card processors such as Paypal, Venmo, eBay, and Stubhub. Officially, this document is called “Form 1099-K: Payment Card and Third Party Network Transactions,” Below is information on who sends these forms and why.
Looking ahead to 2023 returns (filed in 2024): Removing personal transactions.
The delay is only till tax year 2023, so the $600 rule is expected be an issue for the tax year 2023. This delay may allow the IRS time to provide additional guidance on removing personal transactions (ex., money from friends for rent or rideshare).
If you receive payments for goods and services in 2023 from an app or online platform, keeping your receipts’s a good idea and you may want to consider reporting the transaction on the return as decribed below.
What is a 1099-K used for? What do I do with it?
The platform or app you used will send two copies of your 1099-K information (One for tax reporting purposes, the other will be filed with the IRS).
Remember that not all 1099-K transactions are alike, and the tax treatment can vary. No matter what triggers your form, Legacy Tax & Resolution Services can help you report income from your 1099-K.
Do I pay taxes on the 1099-K?
This will largely depend on your situation. If you received Form 1099-K for items you’ve sold, goods related to your hobby, or goods or services related to your business, you might potentially need to report the income. Generally, if you’ve made a profit, you may owe taxes.
1099-K and Gambling
Many gambling organizations use PayPal and other payment platforms to record the transfer in and transfer out of funds into the gambling establishment. The IRS views these transactions as income and they should be reported as describe below. Note: These transaction should also be used as support documentation of transfers into the gambling establishment. This gets really complicated and should be handled by a tax professional with extensive experience with gambling taxation.
Do I have to report the 1099-K transaction for non-income transactions?
If you get a Form 1099-K for a nonbusiness transaction, you cannot ignore the Form 1099-K when you file your income tax return. If you ignore Form 1099-K, the IRS will computer-match the Form 1099-K with your income tax return and send an inquiry letter if there is a mismatch. Unless you pay the income tax the IRS says is due in the letter you receive, it could be a long, expensive process to clear things up with IRS. It is common for the IRS to ignore taxpayer responses and issue statutory notices of deficiency. Once a statutory notice of deficiency is issued, the only way to resolve the problem, without paying the tax, is to file a petition with the United States Tax Court. For most people this will result in engaging an Tax Attorney.
If you cannot get the 1099-K filer to correct a personal transaction, you MUST deal with the potential income on the return!
The IRS views 1099-K transactions as income unless
Here is Q & A 8 from IRS Fact Sheet 2022-41, dated December 8, 2022:
Q8. My friend and I went to a concert, and my friend reimbursed money to me for her concert ticket through an online application. If I get a Form 1099-K for the reimbursement, do I need to pay taxes on it? (added December 28, 2022)
A8. Because the money is not payment for the sale of goods or the provision of services, generally, the reimbursement would not be taxable to you. This does not mean it is not reportable!
Suppose you believe the information on Form 1099-K is incorrect. In that case, the form has been issued in error, or you have a question about the form, contact the filer, whose name and contact information appear in the upper left corner on the front of the form. You may also contact the payment settlement entity whose name and phone number are shown on the lower left side of the form. [Good luck contacting the filer or payment settlement entity along with the millions of others trying to do so!]
Suppose you cannot get the form corrected. In that case, the error should be reported on Form 1040, Schedule 1, Part I, Additional Income, Line 8z, Other Income, with an offsetting entry in Part II, Adjustments to Income, Line 24z, Other Adjustments.
For example, if you received $800 from a friend reimbursing you for a concert ticket and you received a Form 1099-K reporting this as gross proceeds, your Schedule 1 should reflect the following:
Form 1040, Schedule 1 Part I – Line 8z, Other Income. List type and amount: “Form 1099-K Received in Error…. $800” to show the proceeds reported on the Form 1099-K.
Part II – Line 24z, Other Adjustments. List type and amount: “Form 1099-K Received in Error…. $800” to offset the proceeds reported to you in error. Not reporting this adjustment could result in you improperly reporting income on the reimbursement.
If you sell a personal item at a loss, i.e., for less than you paid for the item, you follow the same procedure. For example, if you sell a refrigerator for $700 and the purchase price is $1,000 and receive a Form 1099-K for the $700, you should report the loss transaction as follows: Form 1040, Schedule 1, Part I – Line 8z, Other Income. List type and amount: “Form 1099-K Personal Item Sold at a Loss …. $700” to show the proceeds from the sale reported on the Form 1099-K and Form 1040, Schedule 1, Part II – Line 24z, Other Adjustments. List type and amount: “Form 1099-K Personal Item Sold at a Loss…. $700” to show the amount of the purchase price that offsets the reported proceeds. Personal losses are not deductible. Thus, the $300 loss on the refrigerator cannot be deducted.
Suppose you engaged in multiple transactions some of which resulted in net income and some of which resulted in a net loss as the refrigerator discussed above. In that case, the personal losses do not offset the personal gains, and you must report each transaction separately. However, if the transactions are regular and continuous enough to constitute a trade or business, all the transactions should be reported on Schedule C.
How do I report 1099-K income on my tax return?
How you report, the income will depend on why you received it;
- Hobby income– Report gross hobby income on Schedule 1 (Form 1040) and include the Form 1099-K’s issuer’s name and EIN.
- Business income– If a sole proprietor, (independent contractor), you’ll report the income on Schedule C (Form 1040), line 1, and any returns or allowances on Schedule C, line 2. You would calculate the cost of goods sold and report that on Schedule C, line 4. You would also list associated business expenses in Part II of Schedule C.
Get help with Form 1099-K
When it’s time to report the information on your Form 1099-K, you won’t have to do it alone. No matter what triggered your Form 1099-K, you can count on Legacy Tax & Resolution Services to help you navigate any income you received, including your self-employed taxes.
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