The American Rescue Plan Act of 2021 changed the way businesses report income from payment cards and third party network transactions such as Venmo and CashApp.
Here’s What You Need to Know
Which Transactions Qualify?
Any payment after December 31st, 2021 is subject to the new rules, which indicate that a threshold of $600 in aggregate payments (with no minimum transaction requirement) will trigger the need for a 1099-K. Since it only applies to third-party network transactions for the provision of ‘goods or services,’ personal transfers/gifts and reimbursements do not qualify. The policy does not represent a change to the taxability of income, according to a release from the IRS, which notes that “All income, including from part-time work, side jobs or the sale of goods is still taxable.”
While this form applies only to business transactions, it’s possible to mistakenly receive a 1099-K for a non-business transaction. If this happens, you can contact the issuer directly to address the error.
Tips to Make Tax-Time Easier
1099-K payments belong on a taxpayer’s Schedule C along with business expenses/deductions. Keep all your personal and business transactions separate from each other, including 1099-K earnings. Keeping separate banking accounts and credit cards will make tax time a lot easier. This, along with keeping careful records and maintaining receipts, is also beneficial should you ever face an audit. Having transactions separated will keep you from breaking your brain trying to retroactively parse out expenses on your credit card statements. Credit card statements are not considered sufficient records to the IRS. To that end, keep receipts for any business expenses you plan to deduct.
The Bottom Line
The threshold has changed and you may be seeing a 1099-K that you weren’t expecting. Report it properly and you’ll be good to go!