The IRS’s change in reporting 1099-K implementation has had a turbulent start, leaving independent workers with many queries.
Initially scheduled to begin at the start of 2022, the IRS aimed to enact a novel reporting regulation that would necessitate third-party payment platforms, such as PayPal, Venmo, Cash App, or Zelle, to report income of $600 or more per year to the tax agency.
Last November, the IRS disclosed its plan to postpone the regulation for the second consecutive year. Why? It’s often difficult to differentiate taxable from non-taxable dealings via third-party platforms. For example, money your flatmate sends to you via Venmo for dinner is not taxable, while payment received for a graphic design project is. The pause offers payment apps additional time to prepare.
“We spent numerous months soliciting input from third-party organizations and others, and it was evident that more time is necessary to effectively introduce the new reporting needs,” stated IRS Commissioner Danny Werfel in a November 2023 declaration.
When will the new tax stipulation be launched? And what should you anticipate when submitting your taxes if you earned money via PayPal or another payment platform in 2023? Here’s everything you need to know as we enter tax season.
What’s the IRS $600 payment regulation?
Under recent reporting obligations initially unveiled in the American Rescue Plan, third-party payment platforms will eventually be obligated to report earnings exceeding $600 to the IRS.
For your 2024 taxes (to be filed in 2025), the IRS is intending for a phased implementation, mandating payment platforms to report freelancer and business owner earnings above $5,000 instead of $600. The objective is to decrease the likelihood of inaccuracies and provide the agency and payment platforms more time to aim for the eventual minimum of $600.
Prior to this, third-party platforms only dispatched 1099-Ks to users who received $20,000 in commercial payments across over 200 transactions.
If you’re a self-employed individual, you should already be paying taxes on your total earnings, even if you don’t receive a 1099 from all your earnings. This is not a new regulation; it’s a tax reporting adjustment. The IRS will shift the reporting obligation to payment platforms to monitor transactions that often go unreported.
What the IRS 1099-K change implies for your 2023 tax return
The IRS delayed this reporting obligation for 2023. Consequently, if you earn freelance income, you’ll report your income as usual when you file your taxes this year. You just won’t obtain a 1099-K form from third-party platforms unless you receive over $20,000 in payments across over 200 transactions in 2023.
Instead, you might receive 1099-NECs from any businesses you work with. Even if you don’t get a tax form from a client, you’re still responsible for reporting all your self-employment income.