The change is expected to affect businesses accepting payments via credit cards, online payment services like PayPal or Venmo, freelancing platforms like Uber and Upwork, and auction sites such as eBay.
Prior to 2022, PSEs were only required to issue Forms 1099-K when a merchant received gross payments of more than $20,000 during the year and participated in more than 200 transactions. For the 2022 calendar year, payments exceeding $600 must be reported and there is no minimum number of transactions.
Form 1099-K is an informational return used by PSEs to report payments that have been made to merchants. For credit card transactions the PSE is the bank that issued the card. When the transaction is conducted through a third-party payment processor, the PSE is the processor. Copies of the Form 1099-K are sent to the IRS and the payment recipient.
PayPal and Venmo will begin reporting all payments for goods and services that exceed the $600 threshold for 2022. Both PayPal and Venmo have said they will require customers to provide a Social Security number, taxpayer identification number, or individual taxpayer identification number when they approach $600 in commercial transactions for the year.
eBay’s website says it will be issuing Forms 1099-K to all sellers who meet the $600 threshold. That means it is important that eBay users with more than $600 in sales who are not operating a business meet the IRS’s requirements for demonstrating they are engaged in a hobby and not operating to make a profit. The IRS usually uses a nine-part test to determine whether a taxpayer’s activity is a trade or business or deemed a hobby. Additionally, eBay says it will be requiring any users receiving more than $600 in gross payments during a single year to provide tax identification numbers and issuing them Forms 1099-K.
Payees should receive their Forms 1099-K by Jan. 31 of the year after they receive payments. For example, payees should receive their Forms 1099-K for 2022 by Jan. 31, 2023. The PSEs are required to file the forms with the IRS by Mar. 31 of the year following that being reported if they are filing electronically. If the PSE is not filing electronically, the form must be filed by the last day of February.