Why Did You Receive that 1099-K Form From the IRS?
It’s 2023 and we are now in the last stages of the Form 1040 filing season (for 2022). This may be a good time to become familiar with what to expect for next year’s filing season. You may receive an unexpected Form 1099-K for 2023 income. The 1099-K is an IRS Form used to report payment card and third-party network transactions (think Stripe, Square, even Paypal, etc.). If you have a small business and you accept payment cards, then it is likely that you will receive one of these – perhaps for the first time. That is because the law changed with the signing of the American Rescue Plan of 2021. Starting in tax year 2023, if you received payments in aggregate of more than $600.00 via credit card / debit card using a card network, then you will receive a 1099-K reporting this information. In most cases, this will be income to you. Therefore, it will need to be reported as income.
This is a major change in the reporting of this type of income / payment information! Previously, the card network only had to send these out to anyone that received more than $20,000.00 in aggregate for the year, and had more than 200 transactions for the year. Now, that amount has been lowered to $600.00, and there is no transaction number threshold! This is a huge reduction to this reporting threshold!
An IRS 1099-K Not Reported Correctly Could Cause an Audit
The IRS is doing this to increase the amount of information that they have regarding transactions businesses and self-employed people receive, and which are (in most cases) income. Using this information, the IRS will be able to screen tax returns more effectively for defects or suspected under-reporting of income. If you get one of these 1099-K forms in the mail, make sure that you keep it in your tax records and definitely take it with you or send it to your tax professional when you are having your 2023 income tax return prepared. Not reporting this income in the correct way will likely draw an inquiry from the IRS, and possibly even an examination.
The bottom-line is that the threshold reduction will drive a huge increase in the amount of businesses AND regular consumers receiving these forms for 2023. If you are one of them, make sure to speak to your tax professional about it. This does not just apply to businesses – every taxpayer should be aware of this as all of us could conceivably receive one of these 1099-K forms.
If you have more questions, start with the IRS at this link - IRS 1099-K