Earn a secondary income? Know this new tax rule


A new rule from the Internal Revenue Service (IRS) changes the way third-party network transactions are reported on Form 1099-K for self-employment income earned in 2022 and beyond.

Form 1099-K is used to report payments that you receive from payment settlement entities (ESPs) that process payment card transactions or over a third-party network. Payment cards include prepaid debit, credit, or credit cards. Examples of third-party network transactions include those processed by Venmo, PayPal, and Zelle.

In the past, you would receive Form 1099-K from all payment card entities regardless of the amount or number of transactions. You also received a Form 1099-K from any third-party network through which you made over 200 transactions and over $ 20,000 in gross payments.

All 1099-Ks you receive in January 2022 for income earned in 2021 will follow the old rules, including the $ 20,000 threshold.

As of tax year 2022, the transaction count threshold (200) is completely eliminated and the $ 20,000 gross payment threshold is reduced to $ 600 for third-party network transactions. The rules for payment card transactions remain unchanged. You should receive a 1099-K from all PSEs that process credit card, debit, or prepaid credit card payments on your behalf and from any PSE that processes more than $ 600 in third-party network transactions.

Key points to remember

  • If you are self-employed, even part-time, including as a self-employed person, you are subject to special IRS tax filing requirements for self-employment income.
  • Form 1099-K which reports payment card and third-party network transaction income has a new reporting and filing requirement for income earned in 2022 and filed with taxes in 2023.
  • For 2021, you will receive a 1099-K if you receive payment card revenue AND / OR a total of over $ 20,000 AND over 200 transactions from any third-party network.
  • For 2022, you will receive a 1099-K for any payment card income AND / OR over $ 600 from any third-party network.
  • From 2022, there is no threshold for the minimum number of transactions.

1099-K rules for income earned in 2021

For the 2021 tax year, you should receive a Form 1099-K from any payment settlement entity that processes:

  • Any payment card transaction (credit, debit, prepaid credit cards) without threshold
  • Network transactions with third parties, provided the entity processes more than $ 20,000 and the number of transactions exceeds 200.

The gross amount of any reportable payment is as of the date of the transaction and does not include adjustments for credits, cash equivalents, discounts, fees, refunds or any other amount.

You should receive your Form 1099-K (s) by January 31, 2022, for income earned in 2021, and by January 31, 2023, for income earned in 2022.

1099-K rules for income earned in 2022

For the 2022 tax year, you should receive a Form 1099-K from each payment settlement entity that processes:

  • All payment card transactions as indicated above without threshold
  • Third-party network transactions over $ 600 with no threshold for the number of transactions

The gross amount of any reportable payment is as of the date of the transaction and does not include adjustments for credits, cash equivalents, discounts, fees, refunds or any other amount.

Income tax return 1099-K

If you are self-employed, report your 1099-K payments on Schedule C as part of your gross receipts. Depending on your filing status, you use Schedule E or F instead. Make sure that the amount shown on your 1099-K accurately reflects the payments you have received for your business.

For example, transactions through PSEs for personal gifts, charitable contributions, and refunds are specifically excluded from reporting on Form 1099-K. However, it is possible that personal transactions will be included in the return on Form 1099-K if the recipient receives payment through their business account.

Other non-reportable transactions include:

  • Withdrawal of funds from an automatic cash dispenser (ATM) via a payment card, or a cash advance or loan to the cardholder’s account.
  • Check issued in connection with a payment card accepted by a merchant or other beneficiary.
  • Any transaction in which a payment card is accepted as a means of payment by a merchant or other beneficiary linked to the payment card issuer.

Keep in mind that amounts reported on 1099-K, just like those reported on 1099-MISC or the new 1099-NEC, are gross receipts and do not reflect any deductions or expenses you may have. These are noted elsewhere on your Schedule C.

US Rescue Plan Law and Form 1099-K

Changes to rules 1099-K for tax year 2022 are made mandatory by the American Rescue Plan Act (ARPA) which also clarifies that third-party network reports on Form 1099-K are intended to apply. only to transactions of goods and services.

Since Form 1099-K was first used in 2012, there has been confusion over whether reporting for third-party networks involved transactions other than goods and services. This confusion arose because the definition of a third-party network transaction included “any transaction settled through a third-party payment network”.

ARPA makes it clear that payments of royalties, rents and other types of transactions settled through a third-party payment network are to be reported on Form 1099-MISC and that only transactions for goods and services are to be reported on the Form 1099-K.

The impact of ARPA will be a significant increase in the number of 1099-K forms that PESs are required to file each year. If you receive payments processed through third-party networks, you should carefully monitor those payments and the total amount received from each PSE to ensure that you receive a 1099-K, if applicable. Otherwise, contact the third party network or PSE to resolve the issue.

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