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Goodbye, 1099-K Loophole
Starting January 1, 2022, the American Rescue Plan Act kills the two-step "more than $20,000 and more than 200 transactions" threshold for third-party settlement organization (TPSO) filing of 1099-K and replaces it with the single "$600 or more" reporting threshold.The Joint Committee on Taxation estimates that this change in the 1099 rules will gain more than $8 billion in new taxes over the next 10 years with this change.
States That Closed the Loophole
Several states have already closed this reporting loophole on the state level:- Maryland, Massachusetts, Mississippi, Vermont, and Virginia require a 1099-K to be filed with the state tax agency if a TPSO pays a state resident $600 or more during the year.
- Illinois and New Jersey have a $1,000 1099-K threshold (plus, for Illinois, a requirement of at least four transactions).
- Arkansas has a $2,500 threshold.
- Missouri has a $1,200 threshold.
Takeaways
As a taxpayer, you want your fellow taxpayers to pay their fair share. The changes in the TPSO should stop $8.4 billion of cheating over the next 10 years. That's a good thing.Under current law, as in effect for 2021, when you use a TPSO (such as PayPal) to pay your independent contractors and other Schedule C businesses, you don't need to report your payments on a 1099. The TPSO has that responsibility.
For the tax year 2021, the TPSO reports the monies on a 1099, but only when the contractor or other recipient has both
- more than $20,000 in receipts for the year, and
- more than 200 transactions during the year.
Keep in mind that the definition of a TPSO includes firms such as PayPal but also firms such as Uber, Lyft, Instacart, Grubhub, eBay, and Etsy.
As for now, for the tax year 2021, be alert to state law. Several states, including Arkansas, Illinois, Maryland, Massachusetts, Mississippi, Missouri, New Jersey, and Vermont, already have enacted a lower reporting threshold for Form-1099-K.
If you would like to discuss the new rules, please call me on my direct line at 509-543-7600 or send a request HERE.