KANSAS CITY, Mo. (WDAF) — The new year was supposed to bring a big new tax rule for people and businesses who make money through small businesses or side hobbies.
We previously told you how the 2021 American Rescue plan dropped the threshold for people and businesses to fill out a 1099-K form from $20,000 to $600.
That would impact sports gamblers who might have big winnings at the end of the year, but also the growing number of small businesses that rely on sites like Etsy to find customers or other makers and businesses that take payment through apps like PayPal or Venmo.
“I spent a lot of time, a lot of hours, researching tax laws and trying to figure out what we had to do,” said Good Vibes Metal Owner Breck Liston.
She launched her metal fabrication business in 2016, reaching customers at craft shows and online. She’s made enough to need a personal accountant to handle her business taxes at the end of the year, but she works next to plenty of smaller makers who used to exist in a gray area.
Those businesses were making enough money for it to be taxable income, but it might be only a few hundred or few thousand dollars a year, which would be hard for the federal government to notice.
It’s why the 2021 American Rescue Plan included a new rulemaking any person or business that makes more than $600 in a year submit a 1099K form. The previous threshold to file that form was $20,000.
“There’s a lot of movement of dollars that the IRS wasn’t able to track,” said Five Star Tax & Business Solutions CEO Marquita Miller Joshua.
She helps people and business sort through tax rules but also the new 1099-K form requirement. The IRS intended for it to be in effect for this upcoming tax season before delaying its implementation for one year, creating a transition period.
“This is a year that they’re going to let you slide and get your processes in place,” Miller Joshua said.
She points out that businesses can slide on filling out the form, but any income over $400 in a year is still taxable and should be reported.
Miller Joshua said the initial rule caught many businesses by surprise, making the delay helpful to give them more time to adjust. But since its implementation was suddenly delayed roughly a month before organizations would have to send out 1099K forms anyway, Miller Joshua says she expects many of her clients to get them anyway,y even if they aren’t required.
“By the time the change came out, many organizations like that already had to implement software and technology to make sure that they were able to do the reporting,” Miller Joshua said.
Since 2023 has started, Miller Joshua points out that transactions happening right now will have to be on a 1099-K form for businesses that qualify when they do their taxes next year.