The IRS has released some tips for the upcoming tax season, including a reminder about the new $600 threshold for receiving Form 1099-K for third-party payments.
The IRS has announced a change to the way it treats payments from third-party networks such as Venmo or PayPal. Transactions such as part-time work, side jobs or selling goods will now be subject to the same rules and regulations as other forms of income. This change will help to ensure that all taxpayers are treated fairly and equally.
The American Rescue Plan Act of 2021 has lowered the reporting threshold for the federal Form 1099-K. Previously, taxpayers with more than 200 transactions worth an aggregate of over $20,000 would have to file the form. However, now a single transaction over $600 may trigger the form.
The Biden administration has extended the payment pause on student loan debt, giving borrowers some much-needed relief. There's also a push to expand the child tax credit in 2022, which could provide some families with much-needed financial assistance. And on Giving Tuesday, you can score a charitable tax break by donating to your favorite causes.
The provision is aimed at closing the tax gap, which is a top priority of the Biden administration. According to the Joint Committee on Taxation, it is estimated to bring in $8.4 billion from fiscal year 2021 to 2031.
According to Adam Markowitz, an enrolled agent and vice president at Howard L Markowitz PA, CPA in Windermere, Florida, the new tax form will be a new experience for many people. He warns that the worst thing people can do is to ignore it.
Companies file Form 1099-K annually to report credit card and third-party payments, with a copy going to taxpayers and the IRS. This form, known as an "information return," provides important information to the IRS and helps to ensure that taxpayers are accurately reporting their income.
Tommy Lucas, a certified financial planner and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida, said that in order to avoid an IRS notice or audit, it is important to include all business income from Form 1099-K on your return.
You might get a Form 1099-K for transactions you didn't anticipate, like for instance making a profit by reselling Taylor Swift tickets, Justin Miller, national director of wealth planning at Evercore Wealth Management in San Francisco, warned.
However, it may not be as clear cut when it comes to selling items at a loss, such as used furniture.
"There is no taxable transaction if you sell a $2,000 couch for $1,000," Markowitz said. "You don't get a capital loss for it, and you don't have a gain."
Although the new tax law aims to collect taxes on income, not personal transactions, experts say it’s possible some filers may receive Form 1099-K by mistake.
According to Miller, the new lower threshold amount of $600 for Form 1099-K could result in personal payments and reimbursements being incorrectly reported as taxable transactions.
The IRS has a frequently asked questions page that says you should not receive Form 1099-K for personal transfers, such as reimbursements for splitting meals, gifts or allowances.
If you receive a form for personal transactions that contains an error, the IRS says to contact the issuer to have it corrected. If the company doesn't fix the error, you can attach an explanation to your tax return when you report your income correctly.
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