Today, we look at Form 1099-K, which is an information return that more taxpayers will be required to use in future tax years. This article will cover the form’s basic requirements and later we will look at specific situations where the use of this form may be necessary. An experienced tax professional can help you understand when you will need to file Form 1099-K with your individual 1040 return.
What Is a Form 1099-K?
Form 1099-K is an information return used by taxpayers to report the gross amount of certain, reportable transactions for a tax year. The IRS uses this form as a measure to help ensure that taxpayers voluntarily comply with legal reporting requirements.
If you receive payments from any payment card or third-party network transaction, you must report these payments on Form 1099-K. If you received any payments in 2022, you should receive Form 1099-K from each payment settlement entity with which you made a reportable transaction. The form should arrive by January 31, 2023.
The dollar amount of any reportable transaction is determined on the date of the transaction. The gross amount of a reportable payment does not include any adjustments for cash equivalents, credits, fees, discounts, refunds, or any other amounts.
What Transactions Must I Report on Form 1099-K?
Unlike payments received from third-party payment transactions which have a minimum threshold reporting requirement, you must report payments from any payment card transaction. These include transactions made using debit, credit, and stored-value cards (gift cards).
As mentioned above, you must also report payments received in the settlement of third-party payment network transactions above the minimum reporting threshold. For tax years, 2021 and 2022, the minimum reporting threshold is $600. Thus, you must report any gross payment for goods or services that exceeds $600. For returns for calendar years before 2022, you must only file Form 1099-K and report payments if they exceeded $20,000, and you participated in more than 200 such transactions.
It is important to note that for transactions made after March 11, 2021, reporting payments with Form 1099-K applies only to transactions for goods or services settled through a third-party payment network.
What is a Reportable Payment Transaction?
A reportable payment transaction is defined as a payment card transaction or a third-party network transaction. A payment card transaction is any transaction where you use a payment card, an account number, or other identifying data related to a payment card as payment. A third-party network transaction is any transaction you settle through a third-party payment network, like Pay Pal or Venmo.
What is a Third-Party Payment Network?
A third-party payment network is an entity where a central organization exists within a substantial number of account holders (unrelated to the central organization). These account holders provide goods and services through transactions with purchasers which are settled by the central organization under a contractual relationship with the providers. An example of a third-party settlement organization is an online auction payment intermediary (e.g., eBay) that transfers funds from the buyer to the seller for goods or services.
Does an Automated Clearing House Qualify as a Third-Party Payment Network?
An automated clearing house (ACH) that processes electronic vendor-vendee payments through wire transfers, electronic checks, and direct deposits does not qualify as a third-party settlement organization. Since there is no contractual relationship between an ACH and payees, an ACH does not qualify as a third-party settlement organization. Thus, payments made through its network are not reportable.
When a third-party settlement organization makes a payment to a payee, it must report this payment as a gross reportable transaction if it exceeds $600, regardless of how many transactions the payee has.
Talk to a Qualified Tax Professional!
If you live in New York or the Tri-State area and have any questions about any tax-related issue, call 212-490-0704 today for a FREE consultation. You can also learn more online here – THE TAX EXPERTS. We can help you maximize your tax savings for 2022, as well as help you plan to save on your 2023 tax bill!
