Tax Practice News recently released several articles on the changes to the 1099-K reporting requirements for 2022 tax return. Starting with calendar year 2022, payment processors like Venmo and Ebay are required to issue 1099s to anyone who received more than $600 in payments processed through their systems.
Previously, these limits were $20,000 or 200 transactions. It’s exceedingly clear that the new reporting requirement is going to impact a huge number of taxpayers including a large percentage of gig economy workers and small business owners.
The biggest challenge here is the sheer number of taxpayers who don’t know they need to wait for this form to file their returns. Not all of these taxpayers are used to working with a CPA, many operate on a small enough scale that they may have done their own returns for a number of years, which will enhance the likelihood that they don’t know these forms are coming.
The result of which will likely be many taxpayers receiving notices that they did not file and include their 1099-K appropriately.
It is becoming more clear that the IRS is not yet prepared to address compliance with these forms either. Plans to roll out compliance and enforcement of proper filing of the returns are unclear and seemingly unprepared. Roger Harris, President of Padgett Business Services, recently submitted a letter to the House Ways and Means Committee requesting that Congress give serious consideration to pausing the rollout of these new regulations.
The letter states, “We have seen first-hand the negative impact that legislative changes can have on small businesses and other taxpayers when there is not thorough outreach to taxpayers and a focus on not overcomplicating implementation.”
One of the biggest issues and unanswered questions is how taxpayers report these transactions as non-taxable in situations where they are. For example, family members simply sending reimbursements to one another or co-parents sending child support payments.
These types of transactions are prevalent on platforms like Venmo and the result of rule changes would mean that each of these taxpayers receive a 1099-K with no clear place to report this on their returns or notify the IRS that the funds do not belong on their tax returns for any reason.
After a year of extremely challenging, last-minute legislative changes, it would seem to behoove not just taxpayers, but the IRS to push the pause button on new changes until the agency is more caught up with its backlog and nuances of potential issues have been worked out.
