Changes to 1099 reporting are being postponed. Read on to see what that means for you.
Image source: Getty Images
Many people are in the habit of using payment platforms like Venmo for personal or small business use. These platforms make it easy for independent contractors and individuals to get paid.
The IRS wants to crack down on third-party payment reporting and was initially planning to require these platforms to issue a 1099 form to anyone who received more than $600 in payments in 2023. But the IRS just announced it won’t be implementing that rule for 2023 after all.
Making things easier on tax filers
The IRS is delaying the implementation of its new reporting rule to make the process of filing 2023 tax returns easier on individuals and tax professionals alike. To this end, it’s not going to require third-party platforms to issue 1099s at the $600 threshold for 2023. Rather, it will keep the long-standing system in place of only requiring a 1099 for those earning more than $20,000 in the course of more than 200 individual transactions.
To put it another way, let’s say that this year, you were paid $25,000 for freelance work through Venmo across just 50 transactions. In that case, you wouldn’t receive a 1099 because you didn’t meet the requirement of 200 transactions. Similarly, let’s say you were paid 250 times, but only earned a total of $10,000. The old rule still applies due to you not meeting the income threshold.
What’s more, come 2024, the IRS is only going to phase in the new reporting requirements. Third-party platforms will have to issue 1099s to those earning more than $5,000.
How this change impacts you
If you’re someone who works on a freelance basis or runs a business, you may be wondering how this change will impact your tax situation. And the reality is, it shouldn’t.
“The good news is there is really nothing new in the law,” says Mark Steber, Chief Tax Information Officer at Jackson Hewitt. “Earned income is taxable.”
What this means is that if you receive payments during the year via a platform like Venmo, but it’s all reimbursements from friends and payments of that nature, then it doesn’t create a tax burden for you because it’s not considered income. On the other hand, you’re required to report all of the income you earn to the IRS — whether you receive a 1099 form from a third-party platform or not.
“Just because someone isn’t getting a 1099-K this year, and the IRS is postponing the threshold changes, doesn’t mean that the money they’ve earned isn’t income,” says Steber. “The change is who will receive a 1099-K form…If someone fails to report taxable income, they risk penalties and interest from the IRS.”
If you run a business or are self-employed, you must keep a solid record of your business transactions so you know what income to report to the IRS. Failing to report all of your income could have serious consequences.
If you’re self-employed or run a business, your tax situation may be a bit complicated by that alone. In addition to being mindful of reporting all of your income, you’ll also need to know which tax deductions you’re entitled to claim. That’s why Steber recommends getting professional tax help rather than going it alone.
“I strongly urge taxpayers who earn money using third-party platforms and from self-employment matters to still work with a tax professional…There’s a solid chance that these people still have reportable income that needs to be on their 2023 federal income tax return,” he says.
Alert: highest cash back card we’ve seen now has 0% intro APR until 2025
If you’re using the wrong credit or debit card, it could be costing you serious money. Our experts love this top pick, which features a 0% intro APR for 15 months, an insane cash back rate of up to 5%, and all somehow for no annual fee.
In fact, this card is so good that our experts even use it personally. Click here to read our full review for free and apply in just 2 minutes.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.
