The IRS announced that they are delaying the 1099-K form enforcement until tax year 2024. This is to create enough time to adjust to the new way of reporting earnings. This was meant to be reinforced for 2023 to include popular third-party payment apps such as Cash App, Venmo, and PayPal.
The new amount that would cause someone to have to report their earnings was $600, it caused a lot of controversies especially since people used these apps for a variety of different nuances such as helping with a bill, birthday gifts, and donations i.e. personal transactions.
They kept a listening ear and following feedback from taxpayers, tax professionals, and payment processors. To reduce taxpayer confusion, the Internal Revenue Service delayed the new $600 Form 1099-K reporting threshold requirement for third-party payment organizations for tax year 2023 and is planning a threshold of $5,000 for 2024 to phase in the new law.
The IRS made 2023 a transition year to implement the new requirements under the American Rescue Plan that changed the Form 1099-K reporting threshold for payments taxpayers get selling goods or providing a service over $600.
What is the American Rescue Plan?
The American Rescue Plan Act is a legislative package that was signed into law by President Joe Biden on March 11, 2021. It aimed to provide economic relief and address the challenges caused by the COVID-19 pandemic. The plan included various measures to support individuals, businesses, and state and local governments. Key components of the American Rescue Plan included direct payments to individuals, extended unemployment benefits, funding for vaccine distribution and COVID-19 testing, aid to state and local governments, assistance for schools, and provisions to combat child poverty. The overall goal of the plan was to provide relief to Americans facing financial hardships and stimulate the broader economy during the unprecedented circumstances brought about by the pandemic.
What is the $600 Tax Rule?
The $600 tax rule is basically how much the threshold of earrings you are allowed to receive before you have to start reporting it to the IRS.
It used to be a threshold of more than 200 transactions per year, exceeding an aggregate amount of $20,000.
This is very important because we are in the age of the side hustle. A lot of people are selling products, services, or even their time such as Uber, and DoorDash to supplement their income as inflation arises.
As people were collecting funds from their side hustles they would use third-party apps like Cash App and Venmo to exchange the money. The IRS to note this and to better support America as a whole financially, started cracking down on the lack of reporting by making it $600.
What to do if You Receive a 1099-K Form?
The IRS Understanding your Form 1099-K webpage provides resources for taxpayers who receive a 1099-K, including what to do with a Form 1099-K and what to do if you get a Form 1099-K in error.
Taxpayers who receive a Form 1099-K should review the forms, determine if the amount is correct, and determine any deductible expenses associated with the payment they may be able to claim when they file their taxes.
The payment on a Form 1099-K may be reported in different places on your tax return depending on what kind of payment it is. For example, someone who is getting paid as a ride-share driver could report it on Schedule C.
Get Tax Help from Beck + Ibarra: Dallas’ Best Tax Experts
Beck + Ibarra stands out as Dallas’ premier tax experts, offering unparalleled assistance to individuals and businesses navigating the complexities of taxation. With a proven track record of delivering exceptional service, their team of seasoned professionals is dedicated to providing comprehensive tax help tailored to meet the unique needs of each client. Beck + Ibarra’s expertise extends beyond mere compliance; we excel in maximizing tax efficiency, identifying opportunities for savings, and ensuring adherence to the latest tax regulations. Clients can trust in the proficiency of Beck + Ibarra to guide them through the intricacies of tax planning and preparation, making us the go-to choice for anyone seeking reliable and expert tax assistance in Dallas.
