If your business earns more than $600 a year through online venues then there are new reporting rules that you need to be aware of beginning in 2022. For individuals, LLCs, partnerships, and corporations that exceed $600 in payments, you will begin receiving Form 1099-K, Payment Card and Third Party Network Transactions. This tax form should be filed along with your individual tax return. The form will be used to report any transactions that you were paid via online payment processors or marketplaces. Essentially, if your business is using a third party to process debit or credit card transactions then those transactions will need to be reported on Form 1099-K. This means that if your business is using third-party settlement organizations such as Venmo, PayPal or Ebay, then you will be provided a 1099-K form by the company.
Prior to 2022, businesses received this form to report gross proceeds for card transactions if the company had gross payments that exceeded $20,000 and had more than 200 of these transactions in a year. As a result of the American Rescue Plan Act, the previous requirements have been amended. Now if your business uses a third party or payment processor and you generate more than $600 in payments regardless of the number of transactions, you will be required to report this information to the IRS.
It is important to know that the IRS has excluded some transactions from being reported on Form 1099-K. You will not need to list personal gifts, charitable contributions, or reimbursements. A majority of payment processors and marketplaces will be able to identify which transactions will be excluded based on user agreements that you completed when creating your account. For example, this means that a clothing company who receives payment for products through a cash app will receive Form 1099-K, however, friends reimbursing one another for dinner would be excluded. The third party organization in these two scenarios would be able to understand that the clothing company has a commercial agreement while the friends would have completed a personal agreement when they signed up for the application.
These payment settlement entities and marketplaces will be required effective January 1, 2022 to issue Form 1099-K for those individuals and businesses who receive $600 or more in sales. Please note these new requirements will impact your 2022 sales and taxes and won’t need to be reported until the tax season of 2023.
If you have additional questions regarding the updates to Form 1099-K, we recommend contacting your accounting professional for assistance.
