1099-K Update: Freelancers May Not Get This Tax Form From PayPal, Cash App or Venmo

This story is component of Taxes 2022, CNET’s protection of the finest tax computer software and anything else you want to get your return filed quickly, correctly and on-time.

If you experienced a side hustle or were being self-used in 2022, and you produced cash through digital applications like PayPal, Cash App, Zelle or Venmo, you may possibly be expecting a 1099-K. 3rd-celebration payment processors have been scheduled to report any earnings to the IRS and people through this tax variety. Even so, with confusion and issues circulating about this reporting improve, the IRS has briefly postponed rolling out this tax regulation.

“To aid smooth the changeover and ensure clarity for taxpayers, tax specialists and sector, the IRS will delay implementation of the 1099-K variations,” reported Doug O’Donnell, acting IRS commissioner, in a Dec. 23 push launch.

What does this indicate? Nicely, if you acquired far more than $600 from a freelance customer or facet hustle and had been paid via third-bash payment applications, you happen to be however demanded to report your money on your tax return. Even so, you probably is not going to receive tax kind 1099-K for your 2022 earnings.

If you obtained more than $20,000 in payments across in excess of 200 transactions in 2022, nevertheless, you will get a 1099-K.

Whilst distributing 1099-Ks to people with $600 or far more in earnings has been temporarily paused, it will at some point roll out, perhaps in time for your 2023 taxes. With that in intellect, if you freelance or have your individual enterprise, it’s a fantastic concept to understand how this 1099-K tax rule will inevitably affect your taxes.

This is what you have to have to know about 1099-Ks and how they will have an impact on your taxes when the IRS rule is executed.

1. It’s a tax reporting change 

If you might be self-employed, you should really presently be spending taxes on your full earnings, irrespective of how you receive your payments for products and products and services. The new laws is not a tax alter: It really is a tax reporting change so the IRS can retain tabs on transactions manufactured as a result of payment apps that often go unreported. 

Prior to this laws, third-bash payment platforms would only report to the tax agency if a consumer experienced much more than 200 industrial transactions and designed much more than $20,000 in payments in excess of the study course of a yr. 

After the rule is implemented, third-get together payment companies will issue you a 1099-K tax form each year if you generate $600 or additional yearly in revenue for products or companies. This tax type may possibly include taxable and nontaxable transactions, significantly if the account is for the two enterprise and own use. 

To make running your business finances easier, we endorse creating different PayPal, Zelle, Dollars App or Venmo accounts for your specialist transactions.

2. Payment apps may ask for tax details from you

Payment applications like PayPal may well get to out to you to validate your tax facts, such as your employer identification amount, unique tax identification quantity or Social Safety number. If you individual a small business, you most probably have an EIN, but if you happen to be a sole proprietor or unique freelance or gig worker, you can supply an ITIN or SSN. 

3. If you freelance often, a 1099-K may well lessen your tax forms

Here is some excellent information: Obtaining a 1099-K can get some of the handbook operate out of filing your self-work taxes. Earlier, self-used men and women would get 1099-MISC or 1099-NEC tax kinds from every single individual consumer they labored for, when they earned much more than $600.

Now, you may perhaps even now get person 1099-NEC types if you ended up compensated through direct deposit, check or dollars, but your 1099-K will include payments from all shoppers who paid out you through that particular payment app. So, if you work for 5 clientele in 2023, and just one pays by way of immediate deposit, even though the other four pay back you as a result of PayPal, you should obtain two tax kinds, as an alternative of five. You’d get just one 1099-NEC for the direct-deposit client and one particular 1099-K from PayPal for the other four clients’ payments.

This can help you save you from spending your time tracking down paperwork and including up third-get together payments.

4. Products marketed for a gain on Fb Marketplace will be taxed, but own possessions marketed at a loss will never be

If you market individual merchandise for a lot less than you paid out for them and acquire the dollars via third-occasion payment applications, this new legislation will not likely have an effect on you. For case in point, if you invest in a couch for your dwelling for $500 and later on sell it on Facebook Market for $200, you will not likely owe taxes on the sale. Which is simply because it truly is a own item you have sold at a decline. However, you might be required to exhibit documentation of the first acquire to establish that you sold the product at a reduction.

But, if you have a side hustle the place you get things and resell them for a gain via PayPal or an additional digital payment app, then earnings over $600 will be regarded as taxable and described to the IRS. 

Make certain to keep a great record of your buys and on the internet transactions to stay away from paying taxes on any nontaxable earnings — and when in question, contact a tax skilled for aid.

5. The IRS isn’t taxing cash you ship to relatives and buddies

Rumors have circulated that the IRS was cracking down on income sent by 3rd-bash payment applications to relatives and buddies, but that is not accurate. Individual transactions involving items, favors or reimbursements are not considered taxable. Some illustrations of nontaxable transactions contain: 

• Income acquired from a loved ones member as a getaway or birthday gift
• Money acquired from a good friend masking their part of a restaurant monthly bill
• Money gained from your roommate or lover for their share of the hire and utilities

Payments that will be reported on your 1099-K have to be flagged as payments for merchandise or services from the vendor. When you select “sending funds to relatives or buddies” it won’t display up on your tax form. So that money from your roommate for her 50 percent of the restaurant bill is protected.

If you do get a 1099-K for cash that was sent from a family members member or friend, reach out to the payment processing firm to get this transaction corrected.

A lot more tax guidance