Episode 25 –The Latest on the 1099 situation
I have spoken about the 1099 situation in episode 21, and there are some updates that have recently come out. Welcome to this episode about 1099K’s and the third-party payment applications. I’m Paul Rosenblum.
To review, 1099 NEC forms have been filed by companies who pay their vendors for ‘goods and services’ (although it’s focused on services) if your company pays a particular vendor $600.00 or more except if you pay them by credit card. Even if you pay a lawyer less than $600.00 your company is required to create and file a 1099 for them. There are E-filing services that you or your bookkeeper can sign up for that will extract the information from QuickBooks desktop or QuickBooks online, and file every 1099 automatically and very quickly, in most cases. If you want names of companies, drop me an email and I’ll give you the one that I use, (but this year, I will have a backup service (not decided on yet) just in case it goes down like it did last year on Jan. 29th).
The IRS announced 2 years ago that they are changing the rules with 1099’s. They have put it off … until --- now. Before I start, looking at the stats of this podcast series, I can see that the majority of you are listening to these episodes on a mobile device. If you are driving, since this episode is a little technical, I don’t want to hear that you are getting into an accident on the road because of this episode. So, I will speak a little slower, and I will invite you to listen to this episode when you get home when it can have your undivided attention!
If you are jogging, you might want to stop for a few minutes so that you don’t trip when you are listening to this – I’m just kidding --
Starting on Jan. 1, 2024, third party payment companies such as Venmo, PayPal, Cash App, Apple Pay, Google Pay, Square, and Stripe among others, will be creating 1099K forms and sending them to each recipient of annual payments of $5,000.00 or more as well as sending these 1099K forms to the IRS as well (Just like I, and other bookkeepers do in Jan. of every year with 1099 NEC’s). So, this practice will actually start on Jan. 1st, 2025, for the 2024 tax year. NOT for the 2023 tax year that starts on Jan. 1, 2024. So, nothing changes for this tax year of 2023 at all. The third parties will start tracking payments as of Jan. 1, 2024.
As of Jan. 1st, 2025, if the third-party apps (and this does NOT include Zelle, since Zelle is directly attached to someone’s bank account), are sending 1099K’s with the $5,000.00 threshold, then your company and bookkeepers like me will still be responsible to send 1099 NEC forms to anyone, individuals, or LLC’s (but not corporations), from $600.00 to $4,999.99. So, the programming in the accounting software has to be updated to reflect that sometime in 2024.
The questions that are still out there, are-- how are the third-party apps going to be able to tell the difference between you paying for a service for your business which is tax deductible and taxable revenue for the recipient from you being with a friend and splitting a meal at a restaurant? Or if you are on vacation with a friend or another couple and split the cost of parasailing or a tour bus which would not be tax deductible for you or 1099’able for the recipient? Another question --- how is Venmo or PayPal going to enforce the ‘personal’ Venmo only for personal non-tax-deductible use, and the Venmo for Business, which is supposed to be used just for business expenses? And how is PayPal going to differentiate between their ‘Friends and Family’ platform vs ‘PayPal for Business’ platform? We don’t have any solid answers yet that I have come up with. If you have a yard sale, and sell pieces of furniture for $5,000 and someone pays you with Venmo, how are they going to know that the ‘sale’ doesn’t go on a 1099K form? This is not going to be fun in Jan. of 2025. It is expected, at least, as of now, that there will be many mistakes made, so get ready to go through your 1099K forms that you will receive in Jan. of 2025 to make sure that they are not sending you a higher figure on the 1099K than they should.
For the tax year of 2025, the threshold will go back down to $600.00 -- so that the third-party apps will be creating 1099K forms for every annual amount that your company or you pay someone else that is $600.00 or more, so the IRS’s plan is to take the 1099 situation out of my hands by the beginning of 2026. (Yay!) But I’m at the age where I can’t think that far ahead. It has been estimated that the IRS is losing billions of dollars every year because people aren’t declaring the Venmo/PayPal/cash app income on their tax return.
There are some people in Congress who are trying to stop this from happening all-together, but I wouldn’t count on it. Stay tuned!
Next episode -- QuickBooks desktop – the beginning of the end?
It’s tax season! Adrenaline is flowing – less sleep at night – talking faster --- keeping it short with clients --- My head is starting to spin ---- ready for vacation already --- I’m Paul Rosenblum