Beginning January 1, 2022, any individual or business that receives more than $600 in payments for goods or services during the year through a credit card or third-party payment processor must receive a Form 1099-K, Payment cards and third party network transactions. A significantly reduced reporting threshold was introduced as part of the framework The American Rescue Plan Act of 2021 and is expected to lead to a significant increase in the number of 1099-Ks issued by settlement organizations (PSEs) in 2022.
The change is expected to affect businesses that accept credit card payments, online payment services like PayPal or Venmo, freelancer platforms like Uber and Upwork, and auction sites like eBay.
Until 2022, PSEs were required to issue a Form 1099-K only if the seller received more than $20,000 in gross payment during the year and engaged in more than 200 transactions. For the 2022 calendar year, payments over $600 must be reported, and there is no minimum number of transactions.
Form 1099-K is an information return used by PSEs to report payments made to merchants. For credit card transactions, the PSE is the bank that issued the card. If the transaction is through a third party payment processor, PSE is the processor. Copies of Form 1099-K are sent to the IRS and the payee.
PayPal and Venmo will begin reporting all payments for goods and services above the $600 threshold in 2022. Both PayPal and Venmo said they will require customers to provide a Social Security number, Taxpayer Identification Number or Individual Taxpayer Identification Number if they approach $600 in commercial transactions in a year.
eBay site says it will issue 1099-K forms to all sellers who meet the $600 threshold. That means it’s important that eBay users with sales of more than $600 who aren’t running a business meet the IRS’s requirements to demonstrate that they’re engaged in a hobby rather than a business for profit. The IRS typically uses a a nine-part test to determine whether the taxpayer’s activity is a trade or business or considered a hobby. In addition, eBay says it will require all users who receive more than $600 in gross payouts in one year to provide their taxpayer identification numbers and issue them a 1099-K form.
Payees must receive their 1099-K forms by January 31 of the year after the payments are received. For example, payees must receive their 2022 Forms 1099-K by January 31, 2023. If they file the forms electronically, PSEs must file the forms with the IRS by March 31 of the year following the reporting year. If the PSE is not submitted electronically, the form must be submitted by the last day of February.