Form 1099-K - IRS Tax Changes and Business Accounts (2024)

FAQs

Does 1099-K trigger an audit? ›

In this post, there is one key reminder we want to make: If the income you reported on the tax return for your business doesn't match up closely enough with information on your gross receipts that the IRS has from 1099-K filings, it may be a red flag that leads to a tax audit.

1099-K reporting threshold for tax year 2023

The IRS announced that the new Form 1099-K reporting threshold will start in tax year 2023. The old threshold was $20,000 and 200 transactions per year. This applies to tax year 2022 and prior years. The new threshold is more than $600.

Yes, the Form 1099-K reporting threshold doesn't affect whether payments are taxable or whether a tax return must be filed. All income, no matter the amount, is taxable unless the tax law says it isn't – even if you don't get a Form 1099-K.

If this happens, or if the information on the form is wrong, contact the issuer of the Form 1099-K immediately. The issuer's name appears in the upper left corner on the form along with their phone number.

Taking unusually large deductions

So, if you claim a large deduction that doesn't make sense for someone in your income range, the IRS computers are going to flag that deduction. For example, if you make $50,000 during the year, the IRS is going to be suspicious if you claim $20,000 in donations to charity.

Reporting threshold

For tax year 2023, payment apps and online marketplaces are required to file a 1099-K for personal or business accounts that receive over $20,000 in payments from over 200 transactions for goods or services.

If you're a solopreneur or sole proprietor, your 1099-Ks count toward your self-employment income, which is subject to the self-employment tax. Record the information from your 1099-Ks as income on your Schedule C.

The new ”$600 rule”

Under the new rules set forth by the IRS, if you got paid more than $600 for the transaction of goods and services through third-party payment platforms, you will receive a 1099-K for reporting the income.

Forms 1099 are information returns sent to you by an entity that paid you certain types of income throughout the tax year. Getting a Form 1099 doesn't necessarily mean you owe taxes on that income, but you will have to report the income to the IRS on your tax return.

What happens if I forgot to add 1099-K on my taxes? ›

You must also amend your tax return if you forgot to report a taxable 1099 income. You need to file an amended return before the filing due date to resolve a potential tax liability and avoid penalties. However, make sure that the IRS processed your original return before filing the amendment.

This includes 1099-NEC, 1099-MISC and 1099-K forms. The total earned income is then subject to the independent contractor tax rate of 15.3%.

Starting this year, earnings of $600 or more via online platforms like PayPal, Venmo and Etsy must be reported to the IRS on Form 1099-K. Legislation in 2021 dropped this threshold from $20,000. After years of delay, the change becomes effective for tax year 2024.

Penalties for Correcting a 1099 Form

A business generally must pay $100 per incident. The business may also pay a separate $100 fee after the IRS sends a statement to any taxpayer who received an incorrect tax form. Keep in mind that submitting a form with the wrong information is not the only type of error.

If there's a mistake, call the client immediately and request a corrected Form 1099. If the 1099 has been filed with the IRS, ask the client to send the IRS a corrected 1099. You don't want the IRS to think you were paid more than you really owe.

But for individuals filing with a Schedule C—the necessary form you must use if you have 1099 income—your odds of getting audited are higher. Overall your odds of getting audited arelikely low—just a few percent out of 100—but certain actions or deductions will increase the likelihood of investigation.

The taxpayers most likely to be audited are those with annual incomes exceeding $10 million — about 2.4% of those returns were audited in 2020. But the second most likely group to get audited are low- and moderate-income taxpayers who claim the Earned Income Tax Credit, or EITC.

Learn more about our editorial standards. The IRS claims that most tax cheats are in the ranks of the self-employed, so it is not surprising that the IRS scrutinizes this group closely. As a result, the self-employed are more likely to get audited than regular employees.

Although the Form 1099-K reporting threshold for 2023 is $20,000, companies could still send the form for totals over $600. No matter the amount, if you receive payments for selling goods or services or renting property you must report your income.