1099K Reporting 2024
LuSundra Everett, EA, NTPIF
The Home Biz Tax Lady | Business Taxes | Tax Relief | Representation | Business Entities| Speaker | Trainer
There has been another delay in the change of the 1099K reporting. It has also caused more confusion for payors to know if they should issue a 1099K or a 1099-NEC to a provider. Let’s chat about how we got here.
Backstory on 1099K Reporting Change
In December 2020, the Treasury Inspector General of Tax Administration (TIGTA) released the results of a study and found that a lot of taxpayers, who did not meet the 1099K threshold, were not reporting their income. You can read more about the study here.
1099K Requirements
Prior to 2022, the requirements for a third party payment settlement entity (PSE) to file a 1099K were if a payee exceeded $20,000 AND 200 transactions ~?§ 1.6050W-1(c)(4)(i)(ii). PayPal, Stripe, Amazon, or EBay are examples of PSEs. Here are a few examples of 1099K reporting.
Example 1: Business owner A used Stripe for payment processing. A earned $150,000 but only had 10 transactions. Stripe was not required to issue a 1099K.?
Example 2: Business owner B sold on EBay. B had 250 transactions, but only earned $15,000. EBay was not required to issue a 1099K.?
Example 3: Business owner C provided a service and used QuickBooks for invoicing. C earned $25,000 and had 201 transactions. QuickBooks was required to issue a 1099K.?
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All income is taxable unless it is specifically exempted by law. ~§61 Regardless of whether a taxpayer meets the threshold for 3rd parting reporting, the taxpayer is still required to report the income.
Taxpayers became more savvy, and actively avoided 1099K reporting by using different PSEs to stay below the reporting threshold. The legal term for that is structuring, which is illegal.?
To combat underreporting income, the IRS proposed lowering the reporting threshold to $600 to match the 1099-NEC threshold. PSEs (and the public) lost their minds. Suddenly it was viewed that the government was now coming to tax income that wasn’t previously taxed. That was NEVER the case. Taxpayers were not reporting their income as required.
States 1099K Reporting Requirements
Even though Federal Laws have not changed, some states have reduced their 1099K filing requirements. Washington DC, Virginia, Maryland, are a few states that have a $600 threshold for 1099K filing. You can review a complete list of state 1099K requirements here.?That means if you live in one of the states with reduced requirements, you'll receive a 1099K, even though it's less than the Federal requirement.
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LuSundra Everett, EA is the Home Biz Tax Lady, owner of Everett Tax Solutions, and ETS Tax Relief. LuSundra is passionate about educating tax payers about tax law in an easily digestible manner. LuSundra is a huge proponent of tax education and offers training to other Tax Professionals to help them stay on the cutting edge of tax law and new developments. If you need assistance with an IRS or state tax issue, contact ETS Tax Relief here.