Are you planning to file your tax return early? Here are reasons for not to do so.

When it comes to tax return filing, we always take it seriously and try to file our tax as early as possible. However, IRS is warning taxpayers who like to file their tax returns in late January or early February to wait until later in 2023, 

 

Key Points 

• New $600 threshold for receiving Form 1099-K for third-party payments. 
• Form 1099-K applies to payments from third-party networks, such as Venmo or PayPal, for transactions such as part-time work, side jobs or selling goods. 
• It is possible you will receive a form 1099-K for a transaction that you did not anticipate, such as making a profit by reselling Taylor Swift tickets. 
• You may take action if you received an incorrect Form 1099-K. 
• Wait until the end of February 2023 and file your tax return in order to avoid amendment.  

Here is the reason why IRS is warning and asking for late filing.  

In a recent release, the IRS strongly advised against filing tax returns early to look out for Taxpayers may receive Form 1099-K | Internal Revenue Service, which will track third-party payment systems like PayPal and Venmo, according to CNBC. 

As per IR-2022-203 news releases, published on November 22, 2022. Extract from the news releases. 

 

“Taxpayers should report the income they earned, including from part-time work, side jobs or the sale of goods. The American Rescue Plan Act of 2021 lowered the reporting threshold for third-party networks that process payments for those doing business. Prior to 2022, Form 1099-K was issued for third-party payment network transactions only if the total number of transactions exceeded 200 for the year and the aggregate amount of these transactions exceeded $20,000. Now a single transaction exceeding $600 can trigger a 1099-K. The lower information reporting threshold and the summary of income on Form 1099-K enables taxpayers to more easily track the amounts received. Remember, money received through third-party payment applications from friends and relatives as personal gifts or reimbursements for personal expenses is not taxable. Those who receive a 1099-K reflecting income they didn’t earn should call the issuer. The IRS cannot correct it.” 

 

According to the IRS, the modification applies to payments made through third-party networks like Venmo or PayPal for transactions like selling items or performing part-time employment. Other examples include having a side job or selling goods. 

  

Before the year 2022, the reporting level for the federal Form 1099-K was for taxpayers who had more than 200 transactions with a total value of more than $20,000. However, as part of the American Rescue and Reinvestment Plan Act of 2021, Congress reduced the ceiling, and now a single transaction that is over $600 has the potential to activate the form. 

 

Reporting requirement is that (1) third-party networks like Venmo, or PayPal require to file annual information return and (2) issue Form 1099-K to the taxpayer. As a taxpayer, you will receive form 1099- K by January 31, 2023.  

 

Because there is a new tax reform, the taxpayer must wait until January 31, in addition to the number of days it takes for the mail to transmit the form 1099-K, before they may receive it. 

 

It is possible you will receive a form 1099-K for a transaction that you did not anticipate, such as making a profit by reselling Taylor Swift tickets. 

 

On the other hand, if you receive the form for personal transactions, the agency instructs you to get in touch with the issuer in order to have a correction made. According to the IRS, if the firm does not repair the error, you have the option of attaching an explanation to your tax return while still appropriately reporting your income. 

 

Read Understanding Your Form 1099-K | Internal Revenue Service (irs.gov) to know more. In this page, you will find FAQs which are very informative.   

 

Contact Surya Padhi at Sure Financials for any questions and clarification. Surya Padhi is an expert who keeps current on tax law changes as well as a member of the National Association of Tax Professionals National Association of Tax Professionals (NATP) and  National Association of Enrolled Agents (naea.org). Visit Welcome | Sure Financials & Tax Services, LLC (surefintaxsvs.com) for more information and contact us by calling +1 908.300.9193.