The IRS has just announced a delay in the income reporting thresholds for third-party settlement organizations (TPSOs) such as PayPal, Venmo, and CashApp . This is a key change which may impact your 2022 tax filing. Until now, the IRS was set to start scrutinizing business-related transactions and the income derived from them on third-party payment platforms more closely in the 2022 tax year with a much lower reporting threshold of just $600 and a requirement that these companies report on a 1099-K Form. This change has been delayed until 2023.
Currently, the reporting threshold applies when a taxpayer completes more than 200 business transactions per year, exceeding an aggregate amount of $20,000. Note that this does not apply to personal transactions between friends or family members for incidental, personal purchases. In addition, it is critical to note that you need to report all income on your tax return, no matter what the source of it is.
The IRS stated that the delay is intended to reduce confusion during the upcoming 2023 tax filing season. The change came about with the introduction of The American Rescue Plan of 2021 which adjusted the current law beginning Jan. 1, 2023 to require TPSOs to report third-party network transactions paid in 2022 with $600 in aggregate payments, no matter how many transactions were involved. TPSOs report these transactions by providing the IRS Form 1099 K to affected taxpayers. .
With this breaking news on the reporting requirement for TSPOs shifting to 2022, if you already received a Form 1099-K from the platforms that you use for your freelance business, stay tuned for additional guidance before filing your 2022 taxes. Remember even with this change the existing IRS 1099-K reporting threshold of $20,000 in payments from over 200 transactions should be followed.
Now that you know about changes to 1099-Ks affecting self-employed taxpayers, these tips can help you with your own 1099 reporting:
- Remember that you need to report all freelance business income on your tax return no matter where it is derived from. For example, if you received payments labeled as “goods and services” from one or more TPSOs in the amount of $600 or more you will receive a 1099-K because these apps have separate accounts allowing users to identify which of their transactions are for goods and services. These are the only transactions labeled as such will be considered for the 1099-K form.
- Be sure to report all income on your freelance tax return unless it is excluded by law, whether they receive a Form 1099-NEC, Nonemployee Compensation; Form 1099-K; or any other information return.
Make sure to factor in any income from third-party payment platforms in your estimated tax payments at the federal, state, and local levels.
You must pay tax on the money you earn or receive from activities occurring on TPSOs throughout the year, either through withholding or estimated tax payments. If these payments are in addition to a W-2 job or pension, and your tax withholding for these income streams is not enough, you will need to make additional estimated tax payments.
Make sure to track all of your income including that from TSPOs
If you have multiple revenue streams from TSPOs and other sources, it is vital that you can accurately track and report all of the transactions you are facilitating. This will help protect you in the case of an audit and give you the most accurate numbers that you can use to plan for the year ahead.