Don’t forget: there are some big changes in 2022 for anyone earning more than $600 through an online platform. Whether you’ve generated income from Etsy, Airbnb, eBay, VRBO, Uber, or Amazon, you can expect to receive a Form 1099-K, which is also filed with the IRS. So, is 1099-K income taxable? And how will the new requirements affect you when you file your taxes in 2023?
Update: Congress has delayed the law requiring e-commerce platforms to report information on workers earning $600 or more, which was a part of The American Rescue Plan Act of 2021. This law has been pushed by one year, meaning platforms such as Airbnb, eBay, and Etsy will rely on the threshold of more than 200 transactions worth an aggregate above $20,000 for 2022 (not $600).
What is Form 1099-K?
Form 1099-K is used by third-party merchant services companies to report your credit card receipts processed for the year to the IRS: one copy is sent to you, and another copy is filed with the IRS. You’ll still need to report any income, but the 1099 makes it a lot easier for the IRS to track compliance.
|What are merchant services companies?|
The phrase merchant services companies refers to any company that processes payments. Traditional credit card companies, such as Visa, MasterCard, and American Express, may come to mind first. But they can also be the service providers you use to process online payments, such as PayPal, Square, Stripe, Apple Pay, etc.
Form 1099-K is also used by online platforms that facilitate ecommerce—think of every website you may use to process payments, such as Amazon, Airbnb, ebay, Etsy, Lyft, etc.
Is Form 1099-K income taxable?
You’ve always been responsible for reporting online income on your tax return. But this year, the IRS is enforcing these roles in a more targeted manner that enables better tracking of the movement of funds. So, what’s changed?
In 2022, online merchants and platforms face requirements to send 1099 forms for a much lower threshold of sales. In 2021 and earlier, you would only receive a Form 1099-K if your online sales amounted to more than $20,000 AND you had over 200 transactions. In the 2022 tax year, however, any taxpayer that generates $600 or more in online sales will receive Form 1099-K, even if the income generated is from a hobby or side hustle and not a primary source of income. There’s no longer a minimum transaction requirement, which means that just one sale, rental, or service performed for $600 or more will generate Form 1099-K for the tax year 2022 and thereafter.
Who will receive Form 1099-K?
Examples of those who will receive a 1099-K include rental property owners who list their properties online, freelancers compensated via PayPal, Etsy sellers, small businesses and professionals who accept card transactions as payment, and gig workers, such as Uber and Lyft drivers. Essentially, if you receive more than $600 (no transaction minimum) in payments from an online platform in a calendar year, you will receive a 1099-K from each platform, as will the IRS.
Here are some examples of situations that may not have triggered Form 1099-K in 2021 but could cross the new income threshold of $600 in 2022 and beyond:
- Renting out your home or vacation home for a couple of weekends a year through platforms such as Airbnb or VRBO
- Selling over $600 worth of crafts on Etsy
- Using Stripe or another online payment processor to collect payments at your summer market, festival, or a one-off event
- Driving part-time for Uber, Lyft, Postmates, or DoorDash
- Reselling garage sale treasures or family heirlooms on eBay
Learn more about the new 1099-K reporting requirements.
Where might someone have trouble with Form 1099-K?
Many gig workers, particularly those new to the industry, fail to account for their gig income on their tax returns. This is not a mistake you want to make, and the IRS now has more specific documentation to track those funds. For example, if your 1099-K doesn’t match up with the total income you report, you may receive a notice from the IRS flagging the mismatch.
However, just as with 1099-Misc forms, you may have accrual basis related issues or issues where expenses must be broken out in order to report an accurate gross income figure. An example of an accrual basis issue might be if you typically receive large transactions and have accrued the income in a prior year. If you don’t receive those payments until the following year and then experience a significant drop in income, you may receive a 1099-K that is overstated because it is reporting income accrued in the prior year. In this case, you’ll want to work with a qualified tax preparer to ensure it’s handled properly.
Our top tips for 1099 income tax
- When you report this income, remember that you can also report deductible business expenses, such as home office expenses, travel costs, material costs, and rental income maintenance. Check out our guide to small business tax deductions to get you started.
- If you own a rental property, look into cost segregation to boost your cash flow and decrease your tax liability.
- If you’re new to earning money on the side, be sure to educate yourself and take advantage of the tax deductions available to you.
- Be sure to check your 1099-K carefully for any errors, such as an incorrect amount earned.
- Send all tax forms you receive to your accountant in order to ensure that your tax return reports your income accurately.
- Here are some other tax changes for 2022 that you may want to be aware of.
- Learn more about handling your side-hustle income at tax time.
Contact one of our experienced CPAs to schedule a consultation with an advisor to ensure you are prepared for the coming changes and that you’re taking advantage of all deductions available to you.