Last updated on January 26, 2023
If you work as a freelancer, independent contractor, gig worker, or are otherwise self-employed, the phrase “1099 form” is almost certainly familiar to you. That’s because any client from whom you’ve received at least $600 is obligated to send you a 1099-NEC, a tax form that is used to report payments made to non-employees.
But if you pay close attention to the news, or have received or transferred large payments through online platforms, you may also be familiar with the similarly-named (but different in function) Form 1099-K.
Form 1099-K has entered into the news cycle in a major way in recent years as reporting threshold updates were announced and recently, postponed. But, what exactly is Form 1099-K? Why is everyone talking about it? And, how might it affect you?
What is Form 1099-K?
Form 1099-K, officially titled “Form 1099-K: Payment Card and Third Party Network Transactions,” is a form that is used to report payment transactions made through online platforms, apps, and other third-party payment processors. Examples of these include Venmo, PayPal, and Square, among others.
In recent years, third-party payment processors have been required to send 1099-K forms to anyone who has received more than 200 business-related payments totaling over $20,000 in one year. In turn, the 1099-K recipient must report the information included within it on Schedule 1 of Form 1040, “Additional Income and Adjustments to Income,” when filing their federal tax return.
Why has Form 1099-K been in the news?
The American Rescue Plan of 2021 — the legislative package signed into law by President Biden to stimulate the US economy in the wake of the COVID-19 pandemic — contained a number of changes to the US tax code. One of these changes (included under Section 9674) required payment processors to send a Form 1099-K to anyone who had received more than $600 in business-related payments during a particular tax year through their platform. This was an astounding change for those familiar with the previous $20,000 threshold.
The motivation behind this change to the tax code was primarily to implement more stringent regulations on third-party payment processors by obliging taxpayers to report their earnings at a lower threshold. This also ensured that both parties were subject to mandatory financial disclosures (and, subsequently, paying taxes on those disclosures). With the IRS missing out on billions of dollars in uncollected taxes each year, Biden’s administration has made closing the tax gap a key priority. The tax gap is the difference between what the IRS is truly owed and what they actually receive in on-time payments.
Originally, this change was supposed to go into effect for the 2022 tax year. Third-party payment processors were directed to send Form 1099-Ks reflecting the previous year’s payments by January 2023. However, the IRS announced in December 2022 that the Form 1099-K reporting threshold changes would be delayed in order to “facilitate an orderly transition” for taxpayers, third-party payment platforms, tax preparers, and others who would be affected by the changes.
So, when will the Form 1099-K changes take effect?
The IRS has not yet stated when the new changes will go into effect. However, they noted that “additional details on the delay will be available in the near future along with additional information to help taxpayers and the industry.”
Who will receive 1099-Ks in the future?
Whenever the 1099-K reporting threshold changes go into effect, they will be sent to those who have received $600 or more from third-party payment processors for goods provided or services rendered. This could include:
- Small business owners who sell or flip goods through eBay, Etsy, Amazon, Shopify, etc.
- Property owners who rent out their properties on Airbnb, Vrbo, etc.
- Gig workers who earn money through gig economy apps like Uber, Lyft, TaskRabbit, Instacart, etc.
- Freelancers, consultants, and independent contractors who are paid for professional services through platforms like Square, Stripe, PayPal, Bill.com, Venmo, etc.
The law is not intended to track personal transactions such as sharing the cost of a car ride or meal, birthday or holiday gifts, or paying a family member, partner, or roommate for a household bill.
How does the 1099-K affect US Americans living abroad?
With the 1099-K reporting threshold changes postponed for this tax season, US expats will largely not be impacted just yet. However, they may still receive a 1099-K because of the last-minute communications from the IRS about the delay in implementing the lowered threshold. While the IRS has not yet issued specific guidelines for such taxpayers, they stated that they are “working rapidly to provide instructions and clarity so that [those] taxpayers understand what to do.”
In general, it’s always good practice to keep official tax paperwork organized and readily accessible. If you receive a 1099-K form, save it to a secure, easily accessible location so that you can produce it at a later date if needed.
Living or moving abroad can sometimes complicate how to file certain forms – read more about how a mid-year move abroad could affect your tax planning.
Once the Form 1099-K reporting thresholds are officially updated, anyone who receives the form must report the relevant information found within it on their tax return. Tip: make sure to use a reliable currency calculator if the payments received were in a foreign currency. In theory, you shouldn’t have to pay additional taxes as long as you already properly report this income. However, it will add an additional step in the filing process.
Rest assured: Ensuring that you have the most up-to-date information is our top priority, so if there are any status changes regarding the Form 1099-K updates, we’ll be sure to update this article accordingly.
In need of US-tax filing services for Americans abroad?
Taxes are confusing enough as it is, especially for expats. In addition to many long, confusing forms, you have to consider things like avoiding double taxation, filing additional reports. It’s not uncommon to spend hours of time researching and learning about tax deductions and credits that only apply to US taxpayers residing abroad. However, these must must be correctly claimed in order to be applied. Add to that the ever-changing nature of the tax code, and filing expat taxes can begin to feel downright overwhelming.
Fortunately, our Bright!Tax team makes it possible for you to hand off your expat tax filing responsibilities to an expert CPA. With years of experience helping US citizens and permanent residents navigate their tax returns, we’re confident in our ability to help you get and stay compliant, minimize your tax liability, and save you time and stress. And of course, our team of CPAs frequently monitors any changes in tax law, so our expat tax projects are always completed to the best advantage for our clients.
If you have any more questions about Form 1099-K or expat taxes in general, we’re here to help! Just share some details about your situation and one of our CPAs will reach out within one business day.