If you use PayPal, Venmo and other third-party payment networks, then you might get a 1099-K form from the IRS. This form reports transactions from third-party payment networks. And depending on how big your payment is and what it’s for, you may have to file it with your taxes. A financial advisor can help lower your tax liability with a tax planning strategy.
What Is a 1099-K Form?
A 1099-K form is a record of payments from third-party networks. PayPal and Venmo are common examples of third-party networks.
When you receive a copy of your 1099-K form, you’ll see an aggregate total of money received through the payment network for the tax year.
As an example, if you got $100 from 10 different sources throughout the year, your 1099-K will report that you received $1,000 for the tax year.
You’ll receive a 1099-K form from each of the platforms that you use when you surpass the $600 threshold.
When Is a 1099-K Form Used?
At the end of the year, the third-party network fills out a 1099-K form for the users that meet a threshold of transactions. But that threshold is changing in a big way for the 2022 tax year.
As of 2022, third-party payment networks must issue a 1099-K to each user that received more than $600 in payments for the calendar year. That’s a major change from the previous threshold of $20,000.
If you are going to receive a 1099-K form, you should get it by January 31 of the next year. So, if you are waiting for a 1099-K form for the 2022 tax year (which you will file in 2023), you should get the form by January 31, 2023.
You should also note that the IRS will also get a copy of the form.
What to Do With a 1099-K Form?
A 1099-K form serves as a starting point to determine your business income. When you have the document in hand, it’s time to take a closer look at your business records. Payments from a third-party network likely only constitute a portion of your business income. Other payment forms might include cash, check or credit card payments. If you’ve kept careful business books throughout the year, tax time will be easier. But the 1099-K form must be carefully considered.
For example, it’s critical to not report your income twice. In some cases, you’ll have a different 1099 from your client which reflects a payment. But since the client paid via PayPal, you’ll also have that sum included on your 1099-K.
What If You Don’t Have Business Income?
Depending on how you use a third-party payment network, you might not have a business at all. The reality is that many Americans use services like Venmo and PayPal to make splitting bills easier.
For example, your friend might send you $50 for splitting a $100 dinner. In this case, you might receive a 1099-K form. But the “income” reported isn’t really income at all.
If you run into this issue, it’s best to talk to a tax professional about the best reporting methods.
Bottom Line
A 1099-k form is something that many Americans will receive for the 2022 tax year. With the threshold for receiving a 1099k form just $600, most third-party payment network users will find this tax form in their inbox. In some cases, handing a 1099-K form will be as simple as adding the sum to your taxable income. But in other cases, things can get a bit more complicated.
Tax Planning Tips
-
A financial advisor could help you create a tax plan for your income, savings and investments. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
-
With so many forms, figuring out how much you owe in taxes could be complicated. SmartAsset’s free income tax calculator and property tax calculator could help you estimate how much you owe.
Photo credit: ©iStock.com/Dmitry Belyaev, ©iStock.com/Damir Khabirov, ©iStock.com/Drazen Zigic
The post When 1099-K Is Needed: IRS Form appeared first on SmartAsset Blog.
