More than a decade after its release, IRS Form 1099-K is the talk of the town once again among individuals, businesses, accountants, and bookkeepers.
Why?
And what do you really need to know to remain compliant and provide the best service and advice to your firm’s clients?
Keep reading to separate the signal from the noise.
Form 1099-K is an information tax document that helps individuals and businesses reports payments received during the previous year from selling goods or services via:
This form was actually introduced for the 2012 filing season, but a major update to reporting rules is why it’s back in the news in 2024.
The American Rescue Plan introduced in 2021 famously issued direct payments to American taxpayers to help ride out the impacts of COVID-19.
But it also did something else — changed the reporting threshold for business transactions settled using TPSOs. The goal was to require reporting once transactions exceeded $600 (gross), a massive decrease from the previous threshold of 200 transactions or $20,000.
Here’s what you need to know: The threshold change is starting to roll out now in 2024.
After a multi-year delay due to backlash over this sudden and stark change, the IRS issued Notice 2023-74, which will phase in the threshold change. It will start with a new $5,000 threshold for the 2024 tax year.
That said, some states have already switched to a lower threshold. For example, as of 2023, several states instituted the $600 threshold for requiring a 1099-K from TPSOs.
Luckily, this is not another form that accountants and bookkeepers have to think about issuing in time (not for themselves, anyway) — but it’s helpful to know what the 1099-K is because you’ll likely receive one as a business that’s received payment via card.
Because of the 1099-K, you’ll also find yourself issuing a lot fewer 1099-NEC and 1099-MISC forms on your behalf as well as for your clients. This is because transactions made via credit card or one of the dozens of third-party payment platforms are already reported to the IRS via the 1099-K.
Another reason to get to know 1099-Ks is simple: You may find yourself needing to reconcile the data on this form against reported sales income on your clients’ tax returns, and your own. We’ll talk more about this process later in this article.
And finally, you should care about Form 1099-K because millions of taxpayers who have never received one before are about to start seeing them for the first time in 2024 and beyond. And they’re going to turn to you for help.
Here’s what you need to know to prepare for the increase in paperwork and flood of questions you’re likely to receive from your clients around 1099-Ks.
Credit card companies, payment apps, online platforms, and pretty much any entity that processes payments should be sending 1099-Ks to users who meet the threshold.
Here’s the full list from the IRS at the time of this writing:
Per current regulations, they must send one form to the IRS (due Feb. 28 for paper and March 31 for electronic) and one to the individual (due Jan. 31).
Personal payments from friends and family — such as gifts or repayment for a shared meal — should not be reported! Instruct your clients to mark payments like this as personal whenever possible, as it’ll save them money and save you a lot of time on clean-up later.
There are two types of clients who should get a 1099-K:
These payments can be for:
One of the biggest concerns about considerably lowering the threshold for TPSO reporting is how it may impact people who sell personal items casually through platforms like eBay.
Technically, they should only be taxed on these sales if they result in a profit. But profit or not, once a seller meets the reporting threshold, they’re likely to get a 1099-K.
If your client received a 1099-K for income that resulted from personal items sold at a loss, here’s how the IRS recommends handling it using Schedule 1 (Form 1040):
If a client didn’t receive a 1099-K when they expected to, they can usually go straight to the payment platform to find it.
Here’s a quick breakdown of where the document lives on a few popular apps:
In certain instances, the sales revenue you have recorded for a client may not align with the amount reported on their Form 1099-K.
This discrepancy can be the result of cash basis accounting, or the client using the same payment processor for various transactions, such as personal payments or payments for other businesses they own. Most TPSOs will only send one 1099-K, and it will lump all payments together.
This problem reinforces how important it is to warn clients to separate their business and personal payment apps — or to mark payment types as clearly as they can.
That said, sometimes there are actually mistakes on 1099-Ks, such as an incorrect identification number (TIN) or an inaccurately-calculated gross amount or transaction number.
To address this, you should contact the filer about the mistake using the contact info on the 1099-K. If that avenue doesn’t work, which it may not if you’re in a hurry, use Schedule 1 (Form 1040) to denote necessary adjustments.
Modifications to the 1099-K filing requirements should significantly increase the number of people and small businesses who require accounting and/or tax preparation assistance.
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