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RED BANK, NJ — To help taxpayers with filing, I wanted to debunk some common myths to help taxpayers understand what to do with Form 1099-K.
If a taxpayer sold goods or services in 2023 and received payments through certain payment apps or online marketplaces or accepted payment cards, they could have received a third party reporting document Form 1099-K, Payment Card and Third Party Network Transactions.
Following feedback from taxpayers, tax professionals and payment processors, and to reduce taxpayer confusion, the IRS announced Notice 2023-74, which delayed the new federal law $600 reporting threshold for tax year 2023 on Form 1099-K, Payment Card and Third Party Network Transactions. The previous reporting thresholds remained in place for 2023, which are more than $20,000 in payments and over 200 transactions. Taxpayers could have still received forms below the threshold.
It’s important to know that regardless of if a taxpayer received a Form 1099-K or not, they must report their income. This includes payments they receive in cash, property, goods, digital assets or foreign sources or assets.
The Form 1099-K should not report personal payments like gifts and reimbursements.
What to do when filing taxes
It’s important to understand why an individual received a Form 1099-K. Taxpayers can then use it with their other tax records when it’s time to file their return. The form provides the gross amount of payment card/third party network transactions and may include a combination of different kinds of total payments received.
It’s important to note, just because a payment is reported on a Form 1099-K does not mean it’s taxable.
Taxpayers should review the form or forms, determine if the amount is correct, and determine any deductible expenses associated with the payment they may be able to claim when they file their taxes.
Selling personal items at a loss
If an individual sold items at a loss, which means they paid more for the items than for what they sold them, there is not a tax liability. They’ll be able to zero out the payment on their tax return by reporting both the payment and an offsetting adjustment on a Schedule 1 (Form 1040)PDF. This will ensure if they received these forms, they don’t have to pay taxes they don’t owe.
Selling personal items at a gain
If an individual sold items at a gain, which means they paid less than for what they sold it, they will have to report that gain as income, and it’s taxable.
See IRS.gov What to do with Form 1099-K for specific instruction on how to report personal item sales.
What to do with a Form 1099-K received in error
People may get a Form 1099-K when they shouldn’t have if it:
- Reports personal payments from family or friends like gifts or reimbursements.
- Doesn’t belong to them.
- Duplicates a Form 1099-K or other information reporting form they already received.
If this happens:
- Contact the issuer immediately – see “Filer” on the top left corner of Form 1099-K to find out the name and contact information of the issuer.
- Ask for a corrected Form 1099-K that shows a zero amount.
- Keep a copy of the original form and all correspondence with the issuer for your records.
- Don’t wait to file taxes. File even if a corrected Form 1099-K is unavailable.
What to do with an incorrect Form 1099-K
If the payee Taxpayer Identification Number (TIN) or gross payment amount is incorrect taxpayers should request a corrected form from the issuer.
- See “Filer” on the top left corner of Form 1099-K to find the name and contact information of the issuer. If a taxpayer doesn’t recognize the issuer, they should contact the Payment Settlement Entity (PSE) identified on the bottom left corner of the form above their account number.
- Keep a copy of the corrected Form 1099-K with other tax records, along with any correspondence from the issuer or PSE.
- Don’t contact the IRS. The IRS can’t correct a Form 1099-K from an issuer.
Don’t wait to file taxes. To file a tax return, take these steps:
- If the Payee Taxpayer Identification Number (TIN) is incorrect report payments from the Form 1099-K and any sources of income on the appropriate tax return you normally file.
- If the gross payment amount is incorrect report the amount from your incorrect Form 1099-K on Schedule 1 (Form 1040), Additional Income and Adjustments to IncomePDF.
The IRS announced in Nov. 2023, that the reporting threshold for Form 1099-K, Payment Card and Third Party Network Transactions, would not change for 2023. The reporting threshold requirements remain over $20,000 in payments and over 200 transactions.
I continue to see misinformation circulating about why taxpayers may or may not have received a Form 1099-K. Here are some common scenarios involving these forms. More information is also available at IRS.gov for what to do with Form 1099-K and frequently asked questions.
1099-K facts vs myths
Myth: People will get a Form 1099-K from friends and family sending them personal payments.
Fact: Payments from friends and family should generally not be reported on a Form 1099-K. Form 1099-K reports payments for goods or services and should not report personal payments like rent, dinner, travel and other gifts or reimbursements gifts, no matter the amount. Generally, in payment apps, the default is personal payments unless the sender designates that they’re purchasing goods or services, or it is designated a business account.
Myth: If taxpayers didn’t receive a Form 1099-K, they don’t have to report income.
Fact: According to federal law, all income is taxable unless it is specifically excluded by tax law. Taxpayers should report any profits from selling goods or services, regardless of if they receive a Form 1099-K.
Myth: Individuals won’t get a Form 1099-K if they sold goods or services under the $20,000 and 200 transactions payment threshold set for 2023 and previous tax years.
Fact: The 2023 federal reporting threshold of over $20,000 and 200 transactions is a reporting requirement, but companies may still send a Form 1099-K for goods or services payments that are less than that amount. Payment apps and marketplaces that have held backup withholding for a payee during calendar year 2023 must file a Form 945 and a Form 1099-K. Also, their state may have a lower reporting threshold, which could result in receiving a Form 1099-K, even if the total gross payments they received in the year did not exceed the federal reporting threshold.
Myth: Taxpayers owe taxes on the gross amount reported on the Form 1099-K.
Fact: The form provides the gross, or total amount of payments individuals got per app or marketplace. Just because a payment is reported on a Form 1099-K does not mean it is taxable. Taxpayers will need to use the form and other records to determine their actual tax liability when they file their tax return.
More information is available to help determine an individual’s tax obligations at IRS.gov What to do with Form 1099-K.
Myth: People can only get a 1099-K if they’re running a business.
Fact: People may receive a Form 1099-K from payment apps or online marketplaces they used to sell goods or services, or accepted payments from a bank card. See Form 1099-K FAQs on Fact Sheet 2024-03PDF for more information.
Myth: People don’t need to do anything with their Form 1099-K.
Fact: Individuals should use the information on the Form 1099-K with their other tax records to determine their correct tax owed. See Understanding your Form 1099-K and visit the Form 1099-K frequently asked questions for more information.
Someone who receives a Form 1099-K when they shouldn’t have should take these steps.
Myth: There’s nothing available to help individuals understand their Form 1099-K.
Fact: My team is always here to help answer any questions you may have.
Questions? Concerns? Call me on (732) 673-0510.
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Chris Whalen, CPA
(732) 673-0510
81 Oak Hill Road
Red Bank, NJ 07701
www.chriswhalencpa.com
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