Understanding the New 1099-K Regulations

You may have heard that the 1099 reporting requirements have been changed. There’s a lot of misinformation and panic occurring over these changes. But that panic is most likely misplaced and due to a misunderstanding of the new regulations. Let’s breakdown the changes and what they mean for taxpayers.

The Form 1099-K is not a new form, it has been around for years. It is a form with which payment processing companies report payments processed for goods and services to the IRS. These forms are sent to the IRS and a copy is also provided to the seller of the goods and services. The purpose of these forms is to report income earned by businesses which are not subject to reporting on other 1099 forms. For example a business selling clothing to consumers would not receive a 1099 from their customers, but may have a substantial amount of sales. By requiring the payment processor to report sales to the IRS the business owner is less likely to be able to under report their income.

Form 1099-K is only for business transactions. Generally payment processors allow their users to report if they are paying someone for goods or services or if they are paying friends or family. The friends and family transactions are still not subject to reporting on Form 1099-K. If the processor has the option to mark a payment as a payment to friends or family and not as a payment for goods or services that designation should prevent the trigger of a Form 1099-K. On the other hand if the transaction is incorrectly marked as a purchase for goods or services the amount will count towards the Form 1099-K threshold,

The main change is to the threshold that triggers a filing requirement for Form 1099-K. This threshold was $20,000 or 200 transactions. This has been changed to $600. For businesses this shouldn’t change anything, you’re required to report your income regardless of the receipt of a 1099-K. If you have been following that requirement nothing will change for you. However if you receive money through apps such as Venmo and the funds are for personal transfers that are not related to the sale of goods and services you will want to make sure you keep a close eye on how payments are designated. If they are marked as goods or services by accident and those payments reach the $600 threshold you may be issued an erroneous 1099. By making sure payments are correctly marked and by sending requests which accurately mark the payments you can avoid this issue,