Tuesday Tip: Understand & Prepare for 1099-K Reporting Changes

[Matthew Cervoni]

This is our last Tuesday Tip before BPCON2022, which we are so excited for! 

This week we wanted to visit an area of common concern for clients who use third-party payment processors like Venmo. After the American Rescue Plan Act, passed in 2021, the reporting threshold for payments on these platforms went down to $600. 

Many people are worried that this means the payments they receive from friends & family will now be taxed. While that is an understandable fear, the bill did not change what types of payments are considered taxable income. 

The bill specifically requires reporting of payments that accumulate to $600 or more from goods and services, so if you are only receiving from friends & family you should not receive a 1099-K. (If you do, you may be able to reach out to the platform and ask to file a correction, or at least document your transactions so that if the IRS comes asking, you will be prepared.)

If you are running a business and collecting payments on a third-party payment processor, the best practice is to set up a business profile to keep personal and business payments separate. While there are fees associated with a business profile, it ensures your business collections match the 1099-K that will be filed. Also, those fees are a deductible business expense! 

Lastly, it is common practice for small business owners to not report collections from third-party payment processors like Venmo. While that will be harder to get away with due to the new legislation, we also want to remind you that reporting business income is not only the right thing to do, but it can help with your ability to get loans in the future.