Due to the recently passed American Rescue Act of 2021, there is new federal reporting requirements regarding Third Party Settlement Organizations (TPSO's) and Electronic Payment Facilitators (EPF's).
What does that even mean and how does it affect you?
Companies that provide payment services such as PayPal, Cash App, and Venmo will now be required to issue a 1099-K Payment Card and Third-Party Network Transaction if goods and services payments received in the tax year total for more than $600.
Under prior rules, a 1099-K was only required to be issued if the total payments made to a payee exceeded $20,000 AND the number of transactions settled exceeded 200. Under those thresholds, many people and businesses who use these payment facilitators were able to fly under the IRS's radar with their gig work and online sales.
With the new provisions beginning January 2022, many tax payers will be issued a 1099-K showing the amount of income that was received through these payment facilitators that have never gotten one before. The income is required to be reported on the tax payer's income tax return. This information is also furnished to the IRS, meaning they will know exactly how much was received. If the income is not reported the result could be penalties, interest, and potential jail time in extreme cases.
How do you report 1099-K income?
For individuals who receive a 1099-K, this income can be reported on Schedule C Profit or Loss from business on their 1040 U.S. Individual Income Tax Return The Schedule C is also used to report the expenses associated with the income. If you do not include the expenses your tax liability will be over stated and you will be paying more than you need come tax time, so it is essential to get ahead of the game and track your expenses in order to minimize the amount of taxes you are on the hook for.
Head over to our New Client Inquiry page to allow us to assist you with this and make sure you are in compliance and you are maximizing your tax savings.
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