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IRS Updates Form 1099-K FAQs

S.J. Steinhardt
Published Date:
Mar 23, 2023

The IRS has updated its frequently asked questions (FAQs) about Form 1099-K, the information return used for reporting transactions involving payment cards and third-party networks. These FAQs supersede earlier FAQs that were posted in on Dec. 28, 2022.

Last year, the IRS changed the reporting requirement for businesses using payment cards and third-party payment service apps such as Venmo, CashApp, Etsy, StubHub and Airbnb from $20,000 in gross payments from more than 200 transactions to $600 in gross payments. The new requirement, which was  scheduled to take effect for the 2022 tax year, was delayed for one year after objections from business groups, lawmakers and others concerned about the prospect of surprise tax bills or audits.

The change in the reporting threshold, a provision of the 2021 stimulus package known as the American Rescue Plan, is aimed at closing the tax gap, the difference between taxes owed and taxes paid on time. The rule prompted objections from business groups, lawmakers and others who fear the prospect of surprise tax bills or audits.

One of the FAQs asks "Is the gain or loss on the sale of a personal item used to compute my taxable income? Is that reported on a Form 1099-K?"

The answer is that the gain on the sale of a personal item is taxable  and might need to be reported on a Form 1099-K, and the loss on the sale is not deductible. For 2022 tax returns, if taxpayers receive a 1099-K for the sale of a personal item that resulted in a loss, they should make offsetting entries on Schedule 1 of Form 1040, as follows: "Report [the] proceeds (the Form 1099-K amount) on Part I – Line 8z – Other Income, using the description 'Form 1099-K Personal Item Sold at a Loss.' Report the costs, up to but not more than the proceeds amount (the Form 1099-K amount), on Part II – Line 24z – Other Adjustments, using the description 'Form 1099-K Personal Item Sold at a Loss.'"

In the individuals section, two questions have been added.

The first asks whether, if a taxpayer receives multiple Forms 1099-K that report proceeds from the sale of personal items sold at a loss, or Forms 1099-K in error, the taxpayer needs to identify the issuer and the amounts separately for each. Or can the taxpayer combine them all into one item on the Schedule 1, Additional Income and Adjustments to Income, for entry on Lines 8z, Other Income, and 24z, Other Adjustments?

The answer is that the offsetting entries can be reported on Schedule 1, lines 8z and 24z, for each Form 1099-K received separately, or the Forms 1099-K received can be combined. The answer is followed by an explanation on how to fill out the forms.

The second asks whether alternative reporting is acceptable in the case of a taxpayer receiving a Form 1099-K in error if the taxpayer is unable to obtain a corrected form in time to file his or her taxes. An example used is that of tax software putting the gross proceeds amount as a positive and the offsetting amount as a negative on Schedule 1, line 8z, which is different from instructions to input the offsetting amount on Schedule 1, line 24z.

The answer is that the taxpayer may use Schedule 1, line 8z to show both the gross proceeds and the offsetting negative amount to report a Form 1099-K received in error or report proceeds from the sale of a personal item at a loss as an alternative to reporting only gross proceeds on Schedule 1, line 8z with offsetting amounts on Schedule 1, line 24z for tax year 2022.

The FAQs also updated a question about filing Form 1099-K. It asks whether there is a de minimis exception from reporting payments to participating payees of third-party network transactions on Form 1099-K for a third party settlement organization. The IRS said that there is, as a result of the delay in implementing the new rule for one year.

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