Note: IRS delays the rollout of the $600 threshold for 1099-K reporting.
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The threshold for Form 1099-K remains at $20,000 with a 200 transaction limit for the year 2023. This delay designates 2023 as a transition period, maintaining the existing requirements for reporting.
Reporting for third-party digital payments, card processor payments, and cryptocurrency payments is changing for Form 1099-K.
More than ever, gig economy workers, small businesses, and startups are using third-party payment processors like Venmo, CashApp, and others to receive and send money for transactions. Many see this as an easier way to circumvent card fees and the accurate reporting of their income. But all of this will soon change.
Many companies and vendors will report or receive Form 1099-K for the first time. With this reporting mandatory for the upcoming tax season, we outline what 1099-K is, when it is issued, detail the changes set to take effect and what these changes mean to you.
What Is Form 1099 K?
Form 1099-K is an IRS information return, which specifically deals with third-party network transactions and payment card transactions. These are payment transactions that must be reported on Form 1099-K.
Form 1099-K enables the payee (the freelancer or vendor) to record, document, and report all income received through such reportable payment transactions from the payment settlement entities in a calendar year. You are required to report Form 1099-K if you received payments from payment card transactions or in settlement of third-party payment network transactions.
When Is Form 1099-K Issued?
Currently, the IRS requires PSEs to report with Form 1099-K if they make gross payments exceeding $20,000 with a transaction volume of 200 or more in a calendar year. This condition explicitly applies to returns for calendar years prior to 2022. However, when U.S. President Joe Biden signed the American Rescue Plan Act of 2021 (ARPA) into law on March 11th, 2021, the Form 1099-K reporting regime was updated.
What Has Changed In Form 1099-K Reporting In 2022?
The base/minimum reportable amount on Form 1099-K
Previously, the IRS required third-party networks and payment card companies to report only if the gross transaction value amounts to $20,000 or more.
The new update instead requires filers to report all transactions with a minimum gross total amount of $600 or higher.
Transaction volume threshold
Previously, the IRS required third-party entities to report the 1099-K payments with a pre-condition of the transaction volume threshold of 200. This means entities had to report only if the total transaction limit hit 200 or higher.
The new update removes this condition altogether and instead requires filers to report all transactions with no cap on the transaction limit.
Standardization of all 1099-K reports
Form 1099-K reporting has now been standardized for all entities that report a minimum of $600 gross payments made through third-party networks and payment cards to the participating payees, regardless of the transaction count.
This simplifies the 1099-K reporting process and accelerates 1099-K reporting compliance.
What Do These Changes Mean For Your Business?
If You’re A Payee:
As with any other form, if you are a payee who fits the requirements for receiving a 1099-K due to third-party, card transaction payments, you will want to do the following to make sure you accurately report these funds:
Review Your 1099-K Reports
Review your transaction data and validate the reports to ensure that the previous filings report accurate payment information.
Ask For 1099-K Form Copies From Payers
If you previously did not receive a Form 1099-K from the credit card company or a third-party network entity, then reach out to their accounting teams and ask for a copy of the 1099-K forms.
Adapt To The New Updates & Comply
The new updates are here to make things easier for payees as well. While the participating payees don’t have to prepare these forms, payees are still required to report the 1099-K payments received in a tax year on the personal income tax forms. Validating the receipts of such payments and documenting the transactions of a tax year becomes easy. And there is no limit on the number of transactions occurring in a year. So, payees can ask for a copy of the 1099-K form from the payers without hesitation (and without worrying about reaching a certain transaction threshold) and save the form for documentation and compliance purposes.
If You’re A Payer:
If you are a payer issuing a 1099-K form, it is important to accurately report third-party payments to avoid late fees and other penalties. Here are some tips to help you file:
Streamlining Your Reporting
The new thresholds allow for more simplified reporting and filing. With the minimum reportable amount now at $600, the changes to 1099-K share the same standardized threshold for other 1099 forms as well (Example: Form 1099-NEC). Companies should leverage this and streamline all 1099-K reports to accelerate reporting accuracy.
Stay Compliant With IRS Guidelines
With third-party payments now tracked by the IRS for accurate reporting, tax and data compliance becomes crucial to accurate filing. Onboard your vendors with tools such as Bulk TIN verification, which can verify users in a matter of seconds. Extensive compliance tools like Zenwork’s Compliancely go a step further with additional validation checks, including OFAC, Department of the Treasury, DMF, and others. And submit your 1099-K forms per the prescribed due dates to prevent late filing penalties, and IRS audits.
Plan AheadPrepare your teams for the upcoming tax season in 2023 for the 2022-2023 tax year. Keep a track of all your 1099-K payment transactions and verify the TIN+ legal name information of your payees with the real-time TIN Matching program from Tax1099 to avoid TIN discrepancies from the IRS.
Deadline to File and Penalties
If companies choose to electronically file, the due date for recipients to receive their copies of the 1099-K filing is January 31, 2022. The due date to report to the IRS for electronic filing is March 31, 2022.
The penalties for intentional disregard or late filing can range from $50 to over a million in fees and penalties, depending on the length of the delay and type of penalty.
File IRS Form 1099-K 2022 Online Using Tax1099
Staying compliant with 1099-K guidelines doesn’t have to be daunting. Many financial institutions use Tax1099’s API to verify information and file third-party payments, card payments, and crypto payments to the IRS. Validate recipient TINs against the IRS database with our Bulk TIN matching feature. Use the Bulk Import option to enter data with our Excel or CSV templates and upload thousands of forms quickly without the need for extensive manual entry on multiple platforms. Before the January 31 deadline, if you anticipate discrepancies in your reports due to the updates in reporting, you can plan ahead and use Tax1099’s scheduled eFile to edit the form before the date, and schedule the date of filing so you never miss a deadline.
Integrate your company’s processes and file forms seamlessly using Tax1099’s API. And our customer success team is on hand during the filing season and after to provide assistance with questions or troubleshooting.
Zenwork is a Gold Sponsor for Tipalti Illuminate 2022
We are proud to be a Gold Sponsor for Tipalti’s Illuminate 2022 Conference with virtual and in-person events in San Francisco and London from September 13-15th. On September 15th, Zenwork will have a booth at The Pearl in San Francisco, CA to answer questions about filing Form 1099-K and also how Tax1099’s API can make your company’s filing processes automated, streamlined, and efficient. Our smart features include secure form filing, sending eMail copies, USPS mailing, tax exempt checks, real-time TIN checks, and much more.
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About Zenwork
Backed by Spectrum Equity, Zenwork, Inc. is an award-winning, fast-growing digital tax compliance and regulatory reporting technology company, with 10+ years of experience in powering businesses with electronic tax filings and compliance checks. The company currently serves over 150,000 customers nationwide, including 30,000 CPA firms, as well as enterprise customers. Zenwork has multiple compliance products under its umbrella, including Tax1099, Compliancely, EZ2290, and others.
Learn more about Zenwork at www.zenwork.com.
About Tipalti
Tipalti comes from the Hebrew expression for “We handled it.” Tipalti is the only company handling both Global Partner Payments and Accounts Payable workflows for high-velocity companies across the entire financial operations cycle: onboarding and managing global suppliers, instituting procurement controls, streamlining invoice processing and approvals, executing payments around the world, and reconciling payables data across a multi-subsidiary finance organization.
Tipalti enables high-growth companies to scale quickly by making payables strategic with operational, compliance, and financial controls. Companies can efficiently and securely pay thousands of partners and suppliers in 196 countries within minutes. Thousands of companies, such as Amazon Twitch, GoDaddy, Roku, WordPress, and ZipRecruiter use Tipalti to reduce operational workload by 80% and accelerate the financial close by 25%, while improving partner visibility and strengthening financial and spend controls. For more information, visit tipalti.com.
