Another Change For Filing Form 1099-K

The American Rescue Plan Act of 2021 (P.L. 117-2, 3/11/21) lowered the filing threshold for Form 1099-K by third-party settlement organizations (TPSO). Since first enacted in 2008, IRC §6050W had a de minimis exception for third-party settlement organizations (such as PayPal) where they only had to issue a 1099-K to the IRS and customer if they processed over $20,000 of payments AND over 200 transactions for the customer for the year. Starting for 2022, ARPA lowered this to only except filing 1099-K if payments processed were $600 or less. But it also specified that the filing was only if the payments were processed for the sale of goods or services.

Since that change, there were concerns raised about lots more Forms1099-K to be received for 2022. But, I argue that is a good result because data has shown for decades that income tax reporting is better when the taxpayer receives an information return (such as a W-2 for wages), and better yet if there is withholding (no withholding for 1099-K unless backup withholding applies). But, some of the 1099-Ks would also be for selling household/personal use items at a loss. That loss is not allowed, so what does one do with the 1099-K to prevent IRS from sending a CP-2000 notice saying the recipient owes more taxes?  I think this is the reason there was a high filing thresholds from the start of IRC §6050W for third party settlement organizations. The main reporting under §6050W is for the gross amount of credit and debit cards processed and such cards generally are only accepted by merchants.

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Manasa Nadig

A Gig, I thought, always had a kind of 1950’s/ 1960’s hipster vibe. This was something you did on the side while waiting for real life to catch up! The Gig is gaining more legitimacy these days, I believe. It means a free-lance or a side job you hold down out of interest or necessity. It is also called a “Gig Economy,” or a “Shared Economy,” and sometimes people hold down more than one or two gigs.

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You may have heard the news report that a women in Omaha, battling cancer, received about $50,000 from strangers after she set up an account with GoFundMe. It was also reported that the IRS is seeking $19,000 of income taxes from her on this amount. [See ABC8, 4/27/15 story and KETV.]

The power of the Internet to easily reach many people throughout the world enables vendors to have a larger market, writers to have more readers, and people seeking funds to potentially raise a lot. Crowdfunding websites can generate funds for many purposes and many of these purposes result in taxable income to the recipient. However, not always. What the woman in Omaha received is a gift under the income tax law.

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