New Business Information Reporting Starts NOW!


  • June 21, 2022
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Background

Starting with the 2022 tax year, your business will receive a Form 1099-K from each credit card company and third-party payment processor from whom you receive $600 or more in payments.

Under the old rules, a payment processor would send your business a Form 1099-K only if you exceeded both $20,000 in pay­ments AND 200 or more total transactions with that particular processor.

Prevent complexity with some planning

Here are two scenarios that could result in a complicated tax picture if you’ve never received Form 1099-K’s.

  • Double-counting income. You provide a service for another business in exchange for $1,000. Your customer pays you using Venmo, or another third-party digital payment platform.

    The service provider issues your business a 1099-NEC for $1,000, while the credit card company, PayPal or Venmo also issues your business a 1099-K for $1,000. But wait! If you do receive two 1099s, your income now looks like $2,000, overstating your revenue by 100%!

    What you can do: Accurately recording your income (and expenses) as they occur throughout the year will make it easier to notice a scenario where you receive a 1099-NEC and a 1099-K for the same income. You will need to pay special attention to record matching transactions on your tax return, while eliminating the potential, duplicate income.

    In theory, you should never receive a 1099-NEC and a 1099-K for the same payment. According to IRS instructions, payments made with a credit card, debit card or by using a third-party processor must be reported on Form 1099-K, and not on either Form 1099-NEC or 1099-MISC. One or more of your vendors, however, could erroneously issue you a 1099-NEC.
  • Receiving cash that isn’t taxable. You pick up the entire tab when you and a friend, who is also a customer of your business, go out to a restaurant. Your friend pays you via Venmo for their portion of the bill instead of giving you cash.

    What you can do: Whenever you exchange money with friends in a digital format like Venmo, have them mark the transaction as non-business. Each application will handle this differently, but it is critical you do this to avoid getting a 1099-K in error. Another idea is to have separate bank accounts for business and personal transactions.

The new 1099-K reporting requirement will further complicate filing your busi­ness’s taxes AND processing taxes for the IRS. Your best bet is to prepare now for the upcoming tax filing complexity.