The IRS recently delayed the requirement to lower the reporting threshold from $20,000 and 200 transactions in a year to $600 and any number of transactions.
Had they not delayed, taxpayers would have been flooded with unexpected 1099-K forms and confusion in January of this year. The IRS decided that 2022 would be a year of transition so that taxpayers would have more time to prepare for the 1099-Ks that will be issued in January 2024 for 2023. Additionally, the IRS continues to update some of the most frequently asked questions.
Here is what you need to know so that you are prepared and not surprised in January.
The basics- What is this new $600 rule?
As part of the American Rescue Plan Act, the reporting threshold was lowered from 200 aggregate transactions in a year that exceeded $20,000 to any number of transactions that exceeded $600. This was scheduled to take effect 1/1/22, with Form 1099-K filings starting in January 2023. However, the IRS postponed this requirement.
While the law doesn’t require reporting of transactions that are personal- such as splitting the cost of meal, gifts, or reimbursing someone for your share of a bill, it does impact gig workers and others who use 3rd party networks for transactions.
How will it impact me this year?
For 2023, third party transaction and payment processors (like Venmo, CashApp, eBay, Etsy, PayPal, Zelle, and others) will be required to report and file Form 1099-K for all payees who accepted more than $600 in aggregate payments.
Essentially, if you receive payments in excess of $600 for selling any goods or services through a third party payment processor, you can expect to receive a 1099-K in January.
This includes gains from the sale of a personal item. The gain on a sale of a personal item is taxable. And, the loss on the sale of a personal item is not deductible.
The IRS uses the example of selling concert tickets for $900 when you bought them for $500. That will be considered a $400 gain. If you have more than another $200 in any number of transactions (that gets you over the $600 threshold), you will receive a 1099-K in January.
Alternatively, if you sell a refrigerator for $600 that you bought originally for $1,000, there is a way to account for the $400 loss on the sale of this personal item on your return.
Recent updates to frequently asked questions
As you can imagine, there are many questions surrounding this new requirement. As such, the IRS has issued a Frequently Asked Questions document about Form 1099-K, and they continue to update it with new questions and answers.
At Harper & Company, we will make sure to keep you updated on changes that could occur. There is a lot of runway between now and January! If you have any questions, we are happy to answer them. Feel free to give us a call at (614) 456-7222, or bring it up in your next advisory meeting.
