You’ve heard of it, and now here’s what to do if you received a form 1099-K before filing taxes this year.
Form 1099-K, Payment Card, and Third Party Network Transactions is an IRS form that is used to report certain payment transactions.
If taxpayers receive a Form 1099-K, they should use that information with their other tax records to determine their correct tax liability. Taxpayers must report all their income on their tax return unless it’s excluded by law, regardless of whether they receive a Form 1099-K, according to a news release.
Taxpayers Will Receive Form 1099-K for Business Transactions, Including Income From:
- A business the taxpayer owns.
- Activities in the gig economy.
- The sale of personal items and assets.
Money received as a gift or for reimbursement does not require a 1099-K. Taxpayers can minimize the chance of an error by asking friends or family members to correctly designate that type of payment as a non-business-related transaction. The taxpayer should also make a note of what the payment was for and who sent it. Good recordkeeping is key.
What to Do When a Form 1099-K is Incorrect
Some taxpayers may have received a Form 1099-K for the sale of personal items, or Form 1099-K may have been issued in error – such as for transactions between friends and family, or expense sharing.
If the information is incorrect on Form 1099-K, taxpayers should contact the issuer immediately. The issuing organization’s name appears in the upper left corner of the form. Taxpayers should keep a copy of all correspondence with the issuer for their records.
If a taxpayer receives a Form 1099-K in error and the taxpayer cannot obtain a corrected Form 1099-K, the taxpayer should follow the IRS’ updated guidance at Understanding Your Form 1099-K.
1099-K Reporting Threshold for the Tax Year 2023
The American Rescue Plan of 2021 changed the reporting threshold requirement for payment apps, also known as third-party settlement organizations. The IRS announced that the new Form 1099-K reporting threshold will start in the tax year 2023.
- The old threshold was $20,000 and 200 transactions per year. This applies to the tax year 2022 and prior years.
- The new threshold is more than $600. This applies to the tax year 2023 and future years.
The threshold change means some people may receive a Form 1099-K who have not received one in the past. There are no changes to what counts as income or how tax is calculated.