This new reporting begins Jan 2022Stimulus Bill Requires Payment Processors (like Paypal) To Report Earnings of $600+ on 1099-K Tax Form
March 11, 2021, 22:47279 Commentsby Chuckhttps://www.doctorofcredit.com/stimulus-bill-requires-payment-processors-like-paypal-to-report-earnings-of-600-on-1099-k-tax-form/
Update: it seems that section 9674 was struck from the final bill, so this law was not passed, as I understand. Phew!
Hat tip to reader Neo Seems the final version of the bill DOES have section 9674, so we are on the hook for this after all. Bummer!
A major under-reported facet of the massive $1.9 stimulus bill (round 3) is that it strengthens requirements on payment processors like Paypal to report on income received through their platforms:Beginning on January 1, 2022
, third party payment processors will have to report any income for goods or services exceeding $600 during the calendar year on a form 1099-K. Previously, processors only had to report this income if it was BOTH: (a) $20,000 or more during the calendar year, and (b) 200 transactions or more.
This allowed most smaller stuff (like Topcashback, Ebates, PFS, Swagbucks payments) to go unreported.
This change concerns me for two reasons:
I’m worried that companies may not always know what is ‘goods and services’ and what is not, leading to misclassifications. E.g. portal earnings are likely rebates and not considered ‘goods or services’, but I’m not confident that Paypal will classify that correctly (as has been the case in the past when even P2P payments were somehow included in the 1099).
Even if everything is correct and it’s income that I’m reporting anyway, it still adds a level of complication to everything, e.g. making sure the tax form is directed to the correct entity (personal or business), and having to burden your accountant with multiple small tax forms from a bunch of random companies.
Whether or not you get a tax form does not change what you actually owe, e.g. if you don’t get a tax form you still have to report income earned, and if you do get a tax form you still only pay tax on the actual profits. (The 1099-K is just for total processed transactions, it’s not assumed to be your total profit; typically the profit on a sale is only a tiny percentage of the 1099-K reporting amount.) But it could still create a hassle with all this. The primary purpose of this stricter law seems to be for gig workers like Uber/Lyft drivers and the like, but it seems like the rest of us will get snared by this as well.Interestingly, if you earn $500 from Topcashback and $500 from Ebates, and have them both paid via Paypal, then you might get a 1099-K from Paypal, but if you get paid from Topcashback and Ebates directly to your bank, then you should not get a tax form.
You can read the full stimulus bill at this link; section 9674 is what we are discussing in this post:
SEC. 9674. MOD Of Exceptions For Reporting Of Third Party Network Transactions.
(a) In General.—Section 6050W(e) of the Internal Revenue Code of 1986 is amended to read as follows:
“(e) De Minimis Exception For Third Party Settlement Organizations.—A third party settlement organization shall not be required to report any information under subsection (a) with respect to third party network transactions of any participating payee if the amount which would otherwise be reported under subsection (a)(2) with respect to such transactions does not exceed $600.”.
(b) Clarification That Reporting Is Not Required On Transactions Which Are Not For Goods Or Services.—Section 6050W(c)(3) of such Code is amended by inserting “described in subsection (d)(3)(A)(iii)” after “any transaction”.
(c) Effective Date.—
(1) In General.—The amendment made by subsection (a) shall apply to returns for calendar years beginning after December 31, 2021.
(2) Clarification.—The amendment made by subsection (b) shall apply to transactions after the date of the enactment of this Act.