Updated 11/21/23: IRS Notice 2023-74
IMPLEMENTATION HAS BEEN DELAYED UNTIL 2024 (1099-k ISSUED 2025)
This means that taxpayers who receive payments through third-party network transactions should not receive Form 1099-K for the 2023 taxable year, unless the aggregate payments received through a single third-party network exceeded $20,000 and the total number of transactions exceeded 200 for the year.
New IRS instructions will cause payment houses such as Paypal and Venmo to issue Form 1099-K if you, as recipient, received more than $600 in payments. They are NOT supposed to include payments for friend-to-friend/family reimbursements, rent sharing, etc. However, many platforms have no way to distinguish between payments for sales on Etsy versus reimbursements from family members.
We predict that this will cause a HUGE MESS for the filing period starting January 2024. IRS.gov states that if in error, you should contact the issuing company (e.g. Venmo) and have them correct it… but with millions of potential errors, they are not likely to do so.
IRS.gov has instructions if you can’t get the Form 1099-K corrected:
- Enter the incorrect amount as “other income” on line 8z of Form 1040.
- Enter the offsetting amount as “other adjustments” on line 24z of Form 1040
- The two amounts will offset and the computer will locate the original amount.
This well-intended method to “catch” phantom income is likely to result in yet another tax season nightmare.
