The $600 Rule
Independent contractors and freelancers are well-acquainted with 1099 forms. Broadly stated, these are forms used to file taxes on income that is typically paid by someone other than your primary employer. In the modern age, many of those payments are made through third-party payment networks such as PayPal (PYPL), Venmo, Amazon (AMZN), Square (SQ), and CashApp.
Prior to 2022, users would be sent a 1099-K if the payments received on any of these networks exceeded $20,000. Now, the threshold is $600. The payment companies are required to send a copy to you and to the IRS.
This Hasn’t Changed
Since the creation of an income tax over 100 years ago, the IRS has always required that taxpayers report any taxable income. In that sense, the rule isn’t new — just the $600 threshold for payments made through third-party firms.
The new threshold for 1099-K forms resulted from changes made under the American Rescue Plan Act. You can think of 1099-K forms as a source of information or reporting that’s provided to you, the taxpayer, as well as the IRS. It will contain a gross amount of payment transactions — provided the amount exceeds $600 – which will help you file your taxes.
If your income situation qualifies, look for the 1099-K to arrive by January 31, 2023. Upon receipt, it’s important to check that your records match up with what’s being reported, and then contact the third-party payment network if there are discrepancies.
But it’s also possible you won’t receive one, even if your side-hustle, gig, or freelance income exceeded $600 in 2022. That’s because PayPal, Venmo, and other apps distinguish between personal or business payments. Personal transactions, such as payments sent to friends or family, are considered separate from those tied to “goods and services.”
That said, the IRS expects taxpayers to report all taxable income. Just because you didn’t receive a 1099-K doesn’t mean you’re off the hook with Uncle Sam.
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