Major IRS Updates to Form 1099-K Reporting, Affecting the Gig Economy
There are major changes coming to 1099-K reporting with the IRS. This could have big effects on third-party payment processors and the gig economy as a whole.
Under the American Rescue Plan Act (ARP), there is a heavy emphasis on streamlining and improving the quality of IRS reporting. Updating Form 1099-K, which is used to report electronic payments, is one of the methods for doing this.
Here is a quick overview of how this form has changed and who this will affect going forward.
Background Information about Form 1099-K
IRS Form 1099-K is used to report electronic payments from credit cards, debit cards, PayPal, Uber, Lyft, and more.
The entities that facilitate these transactions are required to report them using Form 1099-K. Payment Settlement Entities (PSEs), Third-party Settlement Organizations (TPSOs), and Merchant Acquiring Entities (MAEs) are all examples of the types of businesses that are required to file this form with the IRS. They are also required to provide a copy to the recipient of the payment, also referred to as the payee.
The American Rescue Plan Act (ARP) introduced Form 1099-K changes with the intention of increasing transparency and improving the quality of IRS reporting when it comes to the gig economy.
What are the Changes to Form 1099-K?
Up until the recent changes, there was a threshold for reporting. This was 200 transactions and $20,000 in gross volume.
This has changed pretty drastically. The new requirement for reporting is just $600, without any threshold. This means any one transaction totaling $600 or more must be reported on Form 1099-K going forwards.
This will likely improve the IRS’ ability to track payments made to gig workers, and these gig workers will receive a copy of Form 1099-K, making it more clear what amounts they need to report on their own personal income tax returns.
In short, there will be a massive increase in the number of Forms 1099-K filed for the 2022 tax year compared to past tax years. Many more businesses will be required to file and recipients will need to adapt to reporting these payments properly on their personal tax returns.
TaxBandits Simplifies the Process of E-filing Form 1099-K
Payment Settlement Entities will need to e-file form 1099-K more than ever before for the 2022 tax year. While this may seem daunting, TaxBandits is here to help!
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