Tax Debacles and 1099-K Errors
What is Form 1099-K?
Form 1099-K is for Payment Card and Third-Party Network Transactions which is a return used to report certain payment transactions to improve voluntary tax compliance. According to the IRS, you should receive this form if you obtained payments: from all payment card transactions, and in settlement of third-party transactions above the minimum reporting thresholds for returns for calendar years prior to 2022 (gross payments that exceed $20,000 AND more than 200 such transactions) or for returns for calendar years after 2021 (gross payments for goods or services exceeding $600 AND any number of transactions). The 2023 threshold is slated to drop to $600 for even a single transaction.
How does this affect me?
Payment apps such as Venmo, PayPal, and CashApp have created a wave of confusion when reporting earnings. This coincides as well with e-commerce companies such as Etsy and Poshmark. CNBC. So, anyone who accepts payments through credit cards or third-party payment networks might receive a 1099-K. Thus, as these apps and websites continue to boom, more people are expected to receive this form next season and for seasons after that. Everyone makes mistakes – and is not uncommon for there to be a reporting of incorrect amounts or people even double-reporting their income.
Why does it matter?
Matching errors occur when the IRS receives a tax form and it is not included on the return. This can lead to a tax notice. “In effect, the IRS compares the information it receives from third parties to the information included on a tax return,” explains Jim Guarino, a CPA and managing director at Baker Newman Noyes.
The IRS suggests contacting the issuer direct to correct any mistakes on the form but if it can not be updated in a timely manner, it can be addressed by zeroing out the income on two lines of Schedule 1 with the description “Form 1099-K Received in Error” for both. (Part I – Line 8z and Part II – Line 24z). CNBC. On the other hand, it is possible to also include both the gross proceeds and offsetting negative amount on Line 8z. This same process can also be followed if Form 1099-K was received after selling any personal items at a loss. CNBC.