Beware the New 2023 Form 1099-K

Beginning in 2023, third-party payment networks must file Form 1099-K with the IRS and provide a copy to the taxpayer when the gross payment amount exceeds $600. However, not all payments from third parties are taxable. Taxpayers can take steps to prevent non-taxable items from being reported. They also can remedy a third-party payment reported in error.

What Should Be Reported on Form 1099-K

Payment card companies, payment apps, and online marketplaces must file Form 1099-K with the IRS. They must send taxpayers a copy of the form by January 31. Taxpayers should expect a Form 1099-K if they received (1) payments with payment cards, including credit cards, debit cards, and stored value cards (gift cards), and (2) payments of over $600 with a payment app or online marketplace. This includes payments for a personal item or goods sold, services provided, or property rented through a:

• peer-to-peer payment platform (i.e., Venmo or Paypal, but not Zelle) or digital wallet;

• online marketplace (sale or resale of clothing, furniture, and other items);
• craft or maker marketplace;
• auction site;
• car sharing or ride-hailing platform;
• real estate marketplace;
• ticket exchange or resale site;
• crowdfunding platform; or
• freelance marketplace.

Zelle says the new IRS 1099-K reporting rules for third-party payment processors do not apply to them. Some people are leaving payment services that issue 1099-K forms in favor of Zelle. However, if people continue leaving payment services that issue 1099-K forms in favor of Zelle, Congress could extend the law to include Zelle, or the IRS could investigate such transactions.

What Should Not Be Reported on Form 1099-K

Gifts or reimbursement of personal expenses from friends and family should not be reported on Form 1099-K. They are not payments for goods or services.

Thus, for example, if the taxpayer shares the cost of a car ride or a restaurant meal, is repaid by a roommate for a household bill, or receives money for a birthday or holiday gifts, the payments are not taxable income, and therefore should not be reported on Form 1099-K.

How to Prevent Non-taxable Items From Being Reported on Form 1099-K

The IRS advises taxpayers using payment apps for the above non-taxable items to note these types of payments as non-business in the payment apps when possible.

What To Do if the Taxpayer Receives a Form 1099-K in Error or an Incorrect Form 1099-K

A taxpayer may receive a Form 1099-K in error if the form reports payments that were gifts or reimbursements from family or friends, doesn’t belong to the taxpayer, or is a duplicate.

If the taxpayer received a Form 1099-K in error or an incorrect form, the taxpayer should contact the issuer immediately. To locate the issuer, the taxpayer should see “FILER” in the top left corner of the Form 1099-K.

The taxpayer should keep a copy of the original form and all correspondence with the issuer.

If the taxpayer can’t obtain a correct Form 1099-K, the taxpayer should report the amount on  Schedule 1 (Form 1040), Additional Income and Adjustments to Income as follows: (1) enter the incorrect amount on Part I, Line 8z, Other Income; and (2) enter the adjustment for the incorrect amount on Part II – Line 24z – Other adjustments.

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