(Republicaninformer.com)- Big changes are coming for many individual taxpayers this year, as it’s the first year that third-party payment companies will be forced to report earnings that exceeded $600 for 2022.
Thanks to the American Rescue Act, passed by the Democrat-led Congress using budget reconciliation, the limit was lowered substantially from 2021 to 2022.
Before this year, any taxpayer who either received 200 payments or more on a third-party processor and who received in excess of $20,000 in one year received a 1099-K form from those companies. Now, that limit was lowered all the way down to $600, which means that a lot more individual taxpayers are going to receive the form and be forced to report it as part of their income.
Some of the main companies that are affected by this change are PayPal, Venmo and Cash App. Taxpayers who are thinking they can just ignore the form and not report have another thing coming, too. That’s because the American Rescue Act requires the companies to send a copy of all of those forms directly to the IRS.
Adam Markowitz, who is an enrolled agent and also the vice president of Howard L Markowitz PA, CPA in Florida, recently spoke to CNBC about this change. He commented:
“It’s going to be a new form for a lot of people. And the worst thing they can do is ignore it.”
Others in the accounting industry said that it’s quite possible that if the amount on 1099-K forms the IRS receives doesn’t match what taxpayers put on their annual taxes, it could trigger an automatic audit or notice from the IRS.
One of the biggest problems that many people face is that people don’t just receive payments for actual work on these third-party payment processors. Friends and family can send money through them, or people can receive money for concert tickets that they sell.
The national direct of wealth planning at the San Francisco-based Evercore Wealth Management, Justin Miller, explained that this could cause some tax-reporting issues. He said:
“The challenge with the new lower threshold amount of $600 for Form 1099-K is that personal payments and reimbursements could be incorrectly reported as taxable transactions.”
This is a very real problem, and one that could result in people being forced to pay taxes on money that was given to them, sent as repayment for debts or loans, or even transactions that resulted in a loss — such as if someone sold concert tickets for less than they paid for them due to an unexpected scheduling conflict.
That’s why the Center for a Free Economy is petitioning Congress to hurry up and amend this law before the end of the year. The group says with this new law, “both very small business ventures and unwitting non-business taxpayers have found themselves caught in the 1099-K reporting net.
“Congressional policymakers have several bills before them to restore the old 1099-K thresholds, or at least greatly increase them from where they are now. We urge you to consider and adopt these policies before the end of this Congress and the next tax filing season.”