Individuals in the United States were only required to complete Form 1099-K or the IRS 600-dollar rule before this year if their overall number of transactions with third parties for the year exceeded 200 and their total amount was greater than $20,000.
However, the Internal Revenue Service (IRS) dropped the reporting requirement with the passage of the American Rescue Plan Act of 2021 (ARPA).
IRS 600 Dollar Rule
There is a misperception that taxpayers do not need to record earnings of less than the aforementioned amount, even though the IRS is explicit that all income that exceeds $600 should be reported.
However, this is untrue since even if you do not receive Form 1099-K, you must still file a tax return because all income is taxable.
The IRS news release indicates that there is no change to the taxability of income, the sole change is to the reporting requirements for Form 1099-K.
The IRS underlines that money received from friends and family as personal presents or reimbursements for personal expenses through third-party payment applications is not taxable.
While this is going on, the IRS is urging American taxpayers to go to the Get Ready webpage, where they may receive some advice as well as numerous online tools and services that will help them get organized before filing their 2022 federal tax return.
Justin Miller, national director of wealth planning at Evercore Wealth Management in San Francisco, cautioned that it’s likely that you’ll receive Form 1099-K for transactions you don’t anticipate, like profitably resale Taylor Swift tickets, as an example.
Taxpayers May Receive Form 1099-K by Mistake
Although the modification intends to collect taxes on income rather than personal transactions, experts believe it’s likely that some filers may unintentionally receive Form 1099-K.
Personal payments and reimbursements can be misreported as taxable transactions if the $600 lower threshold amount for Form 1099-K is used, as per Miller.
According to a list of frequently asked questions from the IRS, you shouldn’t get Form 1099-K for personal transfers like compensation for meals shared with others, gifts, or allowances.
However, the agency advises contacting the issuer for a correction if you obtain the document for personal transactions. As per the IRS, you can include an explanation with your tax return while accurately reporting your income if the firm doesn’t make the necessary corrections.
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