New 1099-K reporting rules begin this year…
Unless Congress acts to thwart the changes. In 2021, Congress enacted more information reporting. Third-party settlement networks, such as PayPal, Square, Venmo and eBay, must send Form 1099-K to payees who are paid over $600 a year for goods or services. The rules first kick in for 2023 1099-Ks sent out in 2024. They were supposed to take effect for filings this year, but IRS delayed the changes.
More people than ever will receive 1099-Ks because the new rules greatly lower the threshold for 1099-K filings. Under the old rules, these 1099-Ks were sent only to payees with over 200 transactions, who were paid over $20,000.
Taxpayers will have to figure out how to report the amounts on their 1040s
Say you sell a washing machine on eBay in 2023 for $800, and you paid $1500 for it. eBay should send you a 1099-K in late Jan. 2024, reporting the $800 sales price. Even though you don’t have income, and you can’t deduct this personal loss, you’ll still have to report the transaction on your 2023 1040 that you file next year. You’d report the $800 as other income on Schedule 1, line 8z, and as other adjustments on Schedule 1, line 24z, so the two amounts offset. Say StubHub sends you a 1099-K for selling $1,600 tickets that you paid $400 for. You’d report $1,200 of capital gain on Schedule D. People in business would generally report their income on Schedule C.
The 1099-K reports only the gross amount of payments from the entity
It doesn’t account for offsets, such as fees, refunds or chargebacks. If you pay fees to an online marketing place, you would increase your cost basis in the item sold by the fee amount when figuring any gain or loss. So be sure to keep good records. Payments from families and friends should not be reported on 1099-Ks. The new reporting rules apply only to payments for sales of goods and services. So, for example, if you pay for plane tickets for two of your friends, and they use Venmo to reimburse you $900 for their share of the cost, Venmo shouldn’t send you a 1099-K.
The 1099-K changes don’t alter the taxation of the underlying transactions
Even if you don’t receive a 1099-K for moneys received through a website or an app for selling goods or services, you’re still taxed on the gain or income. However, IRS knows many people won’t report the amounts, absent receiving a 1099 form. The income misreporting rate for taxpayers who don’t get a W-2 or a 1099 is 55%.
Relaxing the 1099-K reporting rules has bipartisan support in Congress
Although it’s unlikely that the new changes will be repealed in their entirety, as many Republicans desire, the odds are better for some sort of compromise. For instance, increasing the annual monetary threshold to $5,000 or $10,000 and/or perhaps delaying the start date of the changes for another year or two. Lawmakers and taxpayer advocacy groups worry how IRS will handle the influx of 1099-K forms and the abundance of phone questions if the law isn’t tempered.