In the past, online sellers and companies accepting PayPal or other third-party settlement organizations (TPSO) for goods and services only received IRS Form 1099K when engaging in at least 200 annual transactions worth over $20,000.
That will change beginning January 1, 2022, when the American Rescue Plan Act replaces the former ruling with a single “$600 or more” reporting threshold.
For example, if you worked as a consultant for one company and your client paid you $30,000 via PayPal, you would not receive a 1099-K because you only had one client, not 200 transactions.
The hope is that this will correct the current scenario in which people who use PayPal have an easy loophole to avoid reporting the income on their tax returns. The Joint Committee on Taxation estimates that this change in the 1099 rules will gain more than $8 billion in new taxes over the next ten years.
Thus, in early 2023, you could receive a 1099-K for TPSO earnings from 2022 if you sold more than $600 worth on a single platform. Remember, you may not necessarily be taxed on the money, but you would have to account for it on your return.
As 2022 approaches, get into the habit of tracking your income streams from PayPal and other third parties so that you don’t get taken by surprise on your tax return.
If you would like to discuss the new rules, please email or call me at 201.787.6542.