From January 1, 2022, the IRS will be directly looking into the digital payment service accounts of American business owners with payments of $600 or more made through third-party payment networks needing to be reported.
The move is an attempt to crack down on payments made through third-party apps like Venmo, Cash App, Zelle or Paypal and to ensure that the relevant share of taxes are paid.
Previously, it was up to the business owner to make sure they were reporting income from digital payment services on their tax return. Now, if more than $600 is received in total during the course of the year, the payment service is required to report that amount to the IRS.
Whether a product is being sold online or face-to-face, tax payers can now expect to receive a 1099-K form after January 31 2023 from the payment services that they’re using, showing the revenue they reported on their behalf to the IRS for the purchases of goods and services made in 2022.
More about Form 1099-K
This form is an informational tax form used to report payments made to an individual or business selling goods and services via a third-party network, which are known as Third-Party Settlement Organzations (TPSO) or credit/debit card transaction.
TPSOs are required by the IRS to issue a Form 1099-K detailing the total payments received during a fiscal year. Taxpayers should consider this amount with their tax advisor when calculating gross receipts for their income tax return.
2022 threshold change for 1099K
These new changes apply to payments received for goods and services and are not intended to apply to transactions in relation to payments made to family or friends or for dinner, gifts, shared trips etc.
The changes have been made as part of the American Rescue Plan Act of 2021, amending certain sections of the Internal Revenue Code.
Previously, a 1099-K was only required when a user received more than $20,000 in goods and services transactions in a calendar year and more than 200 goods and services transactions.
According to a PayPal blog, users will be contacted over the next few months for their tax information, like a Social Security Number or Tax ID so that they can continue using their accounts to accept payments for sale of goods and services transactions.
For the 2022 tax year, taxpayers should consider the amounts shown on their Form 1099-K when calculating gross receipts for their income tax return as the IRS will be able to cross-reference both the third-party report and their own.
In-flow and Out-flow Reporting Changes
The In-flow and Out-flow Reporting Changes are currently only a legislative proposal which Congress may consider this year.
The proposed change would eventually require all banks and payment service providers to report total inflows and outflows for accounts with at least $10,000 of total deposits and/or withdrawals to the IRS with the intention of increasing the visibility the IRS has into money coming in and out of customer accounts.
How we can help
If you need help to complete your tax return contact us today. TaxAssist offers an expert professional advisory service. Inquire online here to book your free, no obligation consultation.
Date published Jan 6, 2022 | Last updated Jul 8, 2022
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