IRS warns taxpayers about new $600 threshold for third-party cost reporting

The IRS on Tuesday shared suggestions for the upcoming tax season — together with a reminder in regards to the new $600 threshold for receiving Type 1099-Ok for third-party funds.

The change applies to funds from third-party networks, resembling Venmo or PayPal, for transactions resembling part-time work, facet jobs or promoting items, based on the IRS.

Earlier than 2022, the federal Type 1099-Ok reporting threshold was for taxpayers with greater than 200 transactions value an mixture above $20,000. Nevertheless, Congress slashed the restrict as a part of the American Rescue Plan Act of 2021, and a single transaction over $600 might now set off the shape.

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Aimed toward closing the tax hole — a high precedence of the Biden administration — the availability is estimated to usher in $8.4 billion from fiscal yr 2021 to 2031, based on the Joint Committee on Taxation.  

“It may be a brand new type for lots of people,” mentioned Adam Markowitz, an enrolled agent and vice chairman at Howard L Markowitz PA, CPA in Windermere, Florida. “And the worst factor they’ll do is ignore it.”

Who might obtain Type 1099-Ok for 2022

Firms file Type 1099-Ok, generally known as an “info return,” yearly to report bank card and third-party funds, with a duplicate going to taxpayers and the IRS. 

Tommy Lucas, a licensed monetary planner and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida, mentioned the enterprise revenue in your return should embody what’s reported on Type 1099-Ok. In any other case, you might set off an computerized IRS discover and even an audit, he mentioned.

The problem with the brand new decrease threshold quantity of $600 for Type 1099-Ok is that non-public funds and reimbursements might be incorrectly reported as taxable transactions.

Justin Miller

nationwide director of wealth planning at Evercore Wealth Administration

It is potential you may obtain Type 1099-Ok for transactions you do not count on, resembling reselling Taylor Swift tickets at a revenue, for instance, warned Justin Miller, nationwide director of wealth planning at Evercore Wealth Administration in San Francisco.

However promoting objects at a loss, resembling used furnishings, could also be much less clear.

“Clearly, if you happen to promote a $2,000 sofa for $1,000, there’s not taxable transaction there,” Markowitz mentioned. “You aren’t getting a capital loss for it, and you do not have a achieve.”  

What occurs if you happen to get a 1099-Ok by mistake

Though the change goals to gather taxes on revenue, not private transactions, consultants say it is potential some filers might obtain Type 1099-Ok by mistake. 

“The problem with the brand new decrease threshold quantity of $600 for Type 1099-Ok is that non-public funds and reimbursements might be incorrectly reported as taxable transactions,” Miller mentioned.

A incessantly requested questions web page from the IRS says you should not obtain Type 1099-Ok for private transfers, resembling reimbursements for splitting meals, presents or allowances.

Nevertheless, if you happen to obtain the shape for private transactions, the company says to contact the issuer for a correction. If the corporate does not repair the error, you may connect a proof to your tax return whereas reporting your revenue appropriately, the IRS says.

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