New 1099 declaration form coming in 2022

Starting in tax year 2022, individuals, partnerships, limited liability companies, and corporations that earn more than $ 600 through various online sites will start receiving Form 1099-K, Payment card transactions and third-party networks, on which this income will be reported to themselves and to the IRS. This change will significantly increase the number of 1099-K forms to file with the IRS and provide to recipients in early 2023.

Traditionally, merchants have received Form 1099-K declaring the gross proceeds of payment card transactions without de minimis thresholds. However, for 2021 and prior years, payments made through various marketplaces and payment processors (third-party settlement agencies, or TPSOs) that connect buyers and sellers were only subject to reporting when the amount paid to a single payee over the course of of a calendar year exceeded $ 20,000. and the total number of transactions with this beneficiary during the calendar year exceeded 200.

Now, due to a provision of the American Rescue Plan Act of 2021, if a TPSO – or its Electronic Payment Facilitator, or EPF – makes payments totaling more than $ 600 in a calendar year to a beneficiary , he will be required to report these payments on a 1099-K form. It is important to note that many e-commerce websites and Web 2.0 market economy services are TPSOs for Form 1099-K reporting purposes.

Who is required to report?

A TPSO must report payments made through a third-party network. A third-party payment network is an agreement or arrangement that:

  1. Involves the establishment of accounts with a central organization by a significant number of suppliers of goods or services – generally considered to be over 50 – who are unrelated to the central organization and have agreed to settle transactions for the provision of goods and services with buyers by agreement or arrangement;
  2. Provides standards and mechanisms for the settlement of these transactions; and
  3. Guarantees payment to suppliers of goods and services in settlement of transactions with buyers.

There is an exception to reporting by TPSOs for payments made through an EPF. When a TPSO contracts with an EPF to make third-party network transaction settlement payments on behalf of the TPSO, the EPF must file Form 1099-K in place of the TPSO if the EPF submits instructions to transfer funds in the TPSO account. beneficiary participating in the settlement of transactions to be declared.

Who will receive Form 1099-K in the future?

Landlords who lease their vacation properties through a marketplace typically do not receive Form 1099-K under existing rules, as they typically do not meet the threshold of 200 transactions per year; likewise, internet sellers of collectibles rarely reach the threshold. Likewise, many people looking to make extra money through online websites doing deliveries, cleaning homes, babysitting, or performing other services often don’t earn more than that. $ 20,000 in a calendar year. However, under the new law, these landowners and concert workers will now receive 2022 1099-K forms declaring their additional income in January 2023 if that income in 2022 exceeds $ 600.

These 1099-K forms will not reflect the various deductible expenses associated with this “extra” income such as utilities and depreciation for owners, the basis of goods sold by vendors, or the cost of mileage for delivery drivers. , all of which must be factored in before any taxable income is determined. For example, a model train collector may have paid $ 5,000 for model train parts over several years that he is now selling for $ 8,000, and the market that the seller introduced to the buyer and through from which the sale took place may charge the seller a total fee of $ 800. It can cost the model train seller $ 200 in postage to send the parts to their buyers. The Form 1099-K that the seller will receive from TPSO will report $ 8,000 of gross proceeds paid. However, the vendor’s taxable gain from this sale would only be $ 2,000. As a result, collectors and other online sellers will need to keep detailed records of their expenses in the future to avoid over-filing income and overpaying taxes.

Also consider the alternative: a teenager who walks dogs to earn extra money. If their income in 2022 exceeds $ 600, their spending may be limited to fees charged by the website that connects them to pet owners, but they will have to pay income tax – and possibly self-employment tax – on the income they quit. ‘they win.

It is important to note that transactions for personal gifts, charitable contributions, and refunds are specifically excluded from reporting on Form 1099-K. Most TPSOs will likely attempt to identify these transactions on the basis of their user agreements, which typically state whether the user will be using the website for personal or business transactions. So while a pool maintenance company that receives payments for its services through a cash app may receive 1099-K forms in the future, friends who send money to reimburse one of the between them for theater tickets purchased for a group should not. This is because the pool company must have a business agreement while friends must use personal agreements when registering for the app.

Mechanical

A 1099-K filer should report the gross amount of reportable transactions for each month and for the entire year in separate boxes on the 1099-K form. In addition, a declarant must obtain the tax identification number (TIN) of each beneficiary before making a reportable payment or the declarant must impose withholding tax at a rate of 24% on the gross amount of the payment.

At present, there is no specific method by which a beneficiary’s TIN must be collected. However, there has been at least one proposal that would require Form 1099-K filers to collect TINs from beneficiaries on an IRS Form W-9, “Request for Tax Identification Number and Certification,” under penalty of perjury. . To avoid withholding tax, beneficiaries must ensure that they provide their TINs to the TPSOs and EPFs when registering to use a site.

This column does not necessarily reflect the opinion of the Bureau of National Affairs, Inc. or its owners.

Author Info

Debbie pflieger is a director in the financial services organization of EY. Debbie is the leader in EY Americas tax reporting and withholding services and consults with clients in the area of ​​reporting and withholding, helping them understand and comply with their many obligations in this domain.

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