The much-anticipated 1099-K changes have been delayed by a year. Anticipated is used with a grain of salt as many practitioners were dreading the compliance implications of the change.
The IRS originally announced that beginning with the calendar year 2022 reporting, payment processors such as PayPal and Venmo would be required to report all transactions over $600. The biggest concern was how to discern non-taxable transactions, such as friends that might simply be reimbursing each other for shared expenses or intra-family transactions.
The IRS had yet to issue any guidance on how these transactions would be sorted out, leaving taxpayers scratching their heads regarding how to comply with reporting the forms they would receive without unintended tax consequences.
The American Institute of Certified Public Accountants (AICPA), in the last months, was heavily involved in pressing the IRS to push back the beginning date for reporting requirements. Given that the agency is already significantly behind in processing its current workload and has not yet addressed the many guidance-related questions to the 1099-K changes, the AICPA pleaded not to have more issues created with the upcoming filing season.
Compliance was no doubt going to be daunting for tax preparers as well. Many clients would receive these 1099-K forms without expecting them, which could result in many tax returns potentially having to be amended. Not to mention, where do you put the 1099-K reporting when a client receives the form but doesn’t run a business?
The IRS announced last week that 2022 would not be treated as a “transition year,” and payment processors were only required to adhere to the original rules of reporting, which require a 1099-K to be sent when either more than $20,000 in payments has been processed or more than 200 transactions.
Hopefully, questions related to the changes will be ironed out over the next year, but practitioners should not let their guard down yet. The changes are directly aimed at small business gig economy workers, and it’s a clear indication that future compliance for these taxpayers is coming.
