It’s 2022, with the world becoming increasingly digital, the IRS becomes increasingly concerned. The worry arises with many individuals either working full time or having any ‘side hustles’ online. These jobs are often paid via online payment service providers such as PayPal or Venmo. However, as of 2022, any transaction of more than $600 in sales the IRS wants to know.
Before this, the law stipulates that any third-party payment processor need only report to the tax agency. In the event a user had received more than 200 commercial transactions or had made more than $20,000 payments across the year. However, come 2023 your tax payment for the 2022 financial year will be looking a whole lot different.
What the new law asks for?
The new legislation directs all third-party payment platforms to report transactions received for any goods or services. These need to total over $600 per year. Taxpayers will receive a 1099-K form from their payment provider every year. To find out more on how the Form 1099-K works see here.
According to the IRS, individuals need to report their earnings made online either via self-employment, hobby, or employment. For the calendar year of 2022 under the new legislation, taxpayers fall under the category of the following terms.
- Any gross payment exceeding the total of $600 within the financial year, AND
- Any number of transactions
While many may worry about this change in taxation, it becomes important to note that rather it’s a change in reporting. Third-party payment companies will issue users a 1099-K report in which if you earn more than $600 you may be required to pay tax. However, this is dependent on the method by which you earn it, and often, individuals may deduct it against their return. In a statement made by Papal during November of 2021, this only applies in the event of selling goods and services.
Impact of more than $600 in sales on Small Business Owners
Small business owners on platforms such as Etsy and eBay may receive the 1099-K form from their payment service provider. They will be required to submit certain personal information that will then be reported to the government. This means going forward the IRS will keep a closer watch on the reporting done by individuals running small businesses. And if not reported, the taxpayer will likely face consequences.
While this may not seem like much, many small business owners face a vast number of small transactions daily. Therefore they may miss out and/or forget to report all their transactions. These businesses now face the additional task of reporting all their transactions to the IRS or risk facing the consequences.
