The IRS recently published a tax tip explaining Form 1099-K, covering why taxpayers receive it, how to address incorrect forms, and recent updates to reporting rules. This update comes almost three weeks after reports emerged that some taxpayers received incorrect forms.
What is Form 1099-K?
The 1099-K is an information form detailing business transaction payments collected using payment cards and third-party settlement organizations. According to the IRS, the following list includes reasons why a taxpayer might receive the form:
- A business the taxpayer owns
- Self-employment
- Activities in the gig economy
- The sale of personal items and assets
Businesses that routinely accept fees via payment card or platforms like e-Bay, Venmo, and PayPal are used to seeing Forms 1099-K every year. However, the American Rescue Plan of 2021 significantly lowered the reporting threshold from $20,000 and 200 transactions to just $600. In other words, there will be a dramatic increase in the number of people who receive the form.
Why are some taxpayers incorrectly being sent Form 1099-K?
In December 2022, the Internal Revenue Service announced they are delaying implementation of the new 1099-K reporting threshold until tax year 2023—which would affect next year’s tax returns. Despite this development, news organizations are reporting that taxpayers are receiving forms this year, resulting in confusion ahead of the filing deadline.
For their part, the businesses sending forms to taxpayers who meet the updated ARP reporting threshold say they are trying to get a head start on identifying legitimate recipients. Unfortunately, taxpayers whose friends incorrectly coded money transfers as business transactions are seeing incorrect information on their 1099.
What should taxpayers do if they receive an incorrect Form 1099-K?
The IRS recommends that taxpayers who receive an incorrect Form 1099-K contact the issuing company as soon as possible. The agency outlines a few scenarios that could lead to an incorrect form:
- Some taxpayers may have received a Form 1099-K for the sale of personal items
- Form 1099-K may have been issued in error—such as for transactions between friends and family, or expense sharing
If the taxpayer and third-party settlement organization cannot resolve the issue, the IRS recommends reviewing Understanding Your Form 1099-K.
How can I learn more about helping clients with their 1099-K?
The Drake Software Education Team routinely produces free informational videos covering myriad topics, from Drake Tax tutorials to tax rules. The Form 1099K video explains how you can help clients improve voluntary tax compliance when reporting payment card and third-party network transactions.
Sources: IR-2022-226; IRS Tax Tip 2023-37; “Ticketmaster, PayPal, eBay are hassling customers to report sales amid IRS confusion,” TheHill.com
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