Do you receive payments from your customers via processors like PayPal, Intuit, Square, or similar? Then you may be affected by this new 1099-K threshold change from $20,000 to $600 starting in 2022.
Prior to this update, the IRS required each payment settlement entity (PSE) otherwise known as "Merchant Processors" to send Form 1099-K to both the IRS and the recipient (or customer) if the PSE had processed payments amounting to at least $20,000 and at least 200 transactions per customer in the previous year.
Previously, this meant that if you received BELOW the $20,000 in sales or below the 200 transactions, these PSE's did not have any obligation to send a 1099-K to you to report the income you made. So if you sold less than $20,000 via Ebay, Esty, or other payment collection service, then you likely NEVER saw any 1099-K's come to you in the mail from any of these Merchant Processor companies. Because many people never received this income reporting, they may have never reported this income on their tax returns.
However, the latest IRS update lowers the 1099-K threshold amount from $20,000 to $600 and removes the transaction limit. So this means that many more 1099-K's will be sent out than ever before in online sales and credit card processing history. People who never received any type of income reporting paperwork may now start seeing these forms arrive in the mail between January 1st and March 31st. The reporting deadline for these companies to mail out 1099-K's is January 31st, so you should keep an eye out for these forms in your mailbox between January and March.
This law will become effective in 2022.
If you receive payments via an online service or credit card/debit card service for over $600 in a calendar year, then this may affect your company in 2022. You should connect with a bookkeeper, CPA, or financial advisor to prepare for how this will affect your taxes and in which year.
Furthermore, if you run a business and you have paid any individuals over $600 in a calendar year, then you may have an obligation to send a 1099-MISC or 1099-NEC form to those individuals by or before January 31st, 2022. The best solution to determine whether or not you may have this obligation is to collect a W9 form from anyone you paid over $600 in a calendar year and get with a good bookkeeper and tax professional to see what obligations you have if any.
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