The IRS announced 2022 would be the first year to implement the new reporting change of $600 for Form 1099K from $20,000 reporting threshold regarding mobile payment platforms aka third party settlement organizations (TPSOs). However, due to covid set backs, taxpayer and reporting institution confusion, and over 44 million new Form 1099Ks to process it was temporarily delayed for 2022 and subsequently 2023.
Starting in 2024 a phase-in period will begin. The IRS is planning for a threshold of $5,000.
1099K forms are going to be sent to many taxpayers who might not expect one and may not have a tax obligation. It's important that taxpayers understand what to do as a result of this new reporting.
According to the IRS,
“Personal transactions such as birthday or holiday gifts, sharing the cost of a car ride or meal, or paying a family member or another for a household bill. These payments are not taxable and should not be reported on Form 1099K. However, the casual sale of goods and services, including selling used personal items like clothing, furniture and other household items for a loss, could generate a Form 1099K for many people, even if the seller has no tax liability from those sales.”
The final phase will require TPSOs to report payments of more than $600.
What does this mean if you receive money on mobile payment platforms?
Platforms such as Venmo, PayPal, Cash App, or etc., are now required file and furnish you Form 1099K regarding transactions in excess of $5,000.
Do not commingle your personal and business accounts. Make two separate accounts – one for only business transactions and the other for personal.
Keep detailed records of money received through these platforms to substantiate if the payment was personal or business income. The burden of proof falls ultimately on the taxpayer.
If money you receive is from business activity or a profit from selling goods or services you will need this Form 1099K to complete your 2024 tax return. This money is subject to taxation.
By law, all business income must be reported and is subject to tax.
Ensure your 1099K received is reporting the correct monetary amount you received.
Have the sender detail what the payment is for so when you receive the payment, you can substantiate the amount received.
Example 1: You received $40 from your friend reimbursing you for dinner. Their transaction detail, “Paying $40 for dinner total $80 that we split in half.”
Example 2: You received $100 for a custom quilt you made. Their transaction detail, “Quilt you custom made for me.”
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