As of 2022, the IRS will no longer require forms 1099-K to be filed by third-party payment settlement entities. It was a dramatic decline from $20,000 to $600.
The American Rescue Plan Act of 2021 included this move, which sent tremors throughout the small-business industry. Previously, a large number of small businesses were exempt from a requirement. Now, it seems to apply to most of them. Let’s take a deeper look at the significance of the adjustment.
What can a small-business owner do while waiting to see how everything plays out? The initial stage is to: Get in touch with a professional service provider of small business bookkeeping in Phoenix. Keep up-to-date financial records and books when preparing 1099-Ks to avoid any surprises.
Comparing 1099-NEC to 1099-K
It is challenging to comprehend this law, like most of the IRS’s. The IRS requires that all independent contractors and suppliers paid at least $600 receive annual 1099-NEC forms.
For every payment transaction they process for shops and third parties, credit card companies and third-party processors like Venmo and PayPal send Form 1099-K. Using this information, people can prepare their taxes effectively and quickly.
The 1099-K is not a new form. Initially, the 6050W section of the IRS code was implemented in 2012. In general, the regulation applies to all businesses that accept credit cards or use third-party settlement organizations (TPSOs) to pay for goods or services. Only a small number of enterprises received Form 1099-K, as there is an exception for transactions totaling over $20,000 in gross income.
However, from January 1, 2022, the amount of de minimis income that may be deducted from the receipt of a credit card or TPS was lowered to $600. Therefore, even though you might not have received a 1099-K in the past, you may receive one now that the reporting threshold has been raised.
What are the implications for your small business?
The good news is that the adjustment is unlikely to affect the average small business’ tax burden. Form 1099-K is a statement used in conjunction with your financial records to calculate your proper taxable income.
However, because the 1099-K will reflect the gross value of transactions conducted on your behalf, the move will cause increased administrative headaches for business owners.
The Treasury of the United States will be affected as well. “The forms will overwhelm taxpayers and the IRS with paperwork,” states a National Taxpayers Union Foundation issue brief, “even if most of the items will not trigger income tax obligations.”