Are You Ready for 1099-K Reporting in 2023?

Attention businesses: Do you receive customer payments via third-party apps such as PayPal, Zelle, or Venmo for your business? Unfortunately, due to the changes to 1099-K reporting, you may have to report more in 2023.

The 1099-K threshold will drop to $600 starting in 2022. Unfortunately, this means that many businesses can expect to see a considerable increase in 1099-Ks in 2023. Here are some things you can do to prepare.

What's form 1099-K?

The Form 1099-K can be used to report transactions via payment settlement entities (PSE). You will receive many Forms 1099-K's if your business accepts credit, debit, and third-party payment networks like Paypal and Venmo.

What's changing?

The threshold will drop to $600 starting in 2022. Unfortunately, you may be subject to tax on those transactions if you earn more than $600 per annum (no minimum transaction requirements) through third-party peer-to-peer payment apps. Check with your tax accountant on how it may impact you or your business.

Previous rules required that each PSE send a Form 1099-K to your business by January 31 st if you received more than $20,000 in gross payments volume or more than 200 separate payments within a calendar year.

Which organizations are third parties?

These companies will send you a 1099-K form if your company uses them.

  • PayPal

  • Zelle

  • Square

  • Stripe

  • Venmo

Lyft, Uber, and other third-party organizations are also considered, so you'll receive a 1099-K if you have gigs with any of these companies.

What does mean for your business and you? 

This change will result in many more businesses receiving 1099-Ks, and gig workers will get forms for the first time.

You should prepare yourself for the changes by:

  • Review your gig activities

  • You should keep accurate records of all payments

  • Separate gross receipts from a PSE are income from personal payments. (Example: Splitting a check at dinner). It is wise to keep individual accounts for personal and business expenses since PSEs can't distinguish the two.

  • Document all deductions

Key Takeaways

  • Higher taxes could be imposed on individuals who sell items via selling platforms such as Etsy or Ebay. This tax can be reduced by tracking the price of items sold.

  • Small businesses will be required to include 1099-K's with year-end documents.

  • The form does NOT include credit, fees, discounts, or returns. Individuals will need to track and expense these items themselves.

  • More tax filers might require additional income

Although there has been talk about raising the threshold to $20,000, Congress is interested, but it has yet to be raised. If your reporting obligations change, we will keep you informed.

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