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Knowledge Base Article: KB4310 |
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| Topic: Content Provider (Vendor) Issues | |||
Title: Duplicative 1099-K and 1099-MISC tax documents for our US vendors paid via PayPal for 2022 tax year |
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| Last Reviewed: Feb 02, 2023 | |||
| Keywords: 1099K, 1099-K, duplicative 1099 documents | |||
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Duplicative 1099-K and 1099-MISC tax documents for our US vendors paid via PayPal for 2022 tax year AudioSparx has recently learned about an unfortunate situation that has occurred in relation to our tax reporting obligations for the 2022 tax year. Sadly this is an unintended situation that has been substantially increased for the 2022 tax year by a confusing change in reporting requirements. It turns out that payment-processing companies such as Venmo, PayPal, and Cash App, known as Third-Party Settlement Organizations (TPSOs), are required to provide annual Forms 1099-K to the IRS and the payees they issue payments to. In March 2021, Congress modified the requirements for reporting these transactions by lowering the minimum reporting threshold to any amount over $600 for one or more transactions beginning in 2022. Prior to the change, TPSO companies were only required to report transactions for a payee if (1) they exceeded $20,000 earnings during the tax year AND (2) the number of payment transactions for the payee exceeded 200 total transactions. Additional, then Congress subsequently additionally also created a transition period of one year, postponing the $600 Form 1099-K threshold until the January 31, 2024 reporting date. In essence, the IRS returned the rules back to the pre-March 2021 threshold ($20,000 and 200 transactions) for any calendar year beginning before January 1, 2023. The lower reporting threshold (any number of transactions totaling $600) remains in effect for calendar years starting after December 31, 2022 only. This one-year delay does not apply to any of the other Form 1099-K rules not modified by the American Rescue Plan Act. As a result, PayPal could and should have waited until the end of 2023, rather than 2022, to revise their reporting procedure for issuing 1099-K documents. AudioSparx's advice to our affected artist community is on your tax return's income section, enter all income reported to you on all the 1099 forms you receive (i.e. both the 1099-K from PayPal, and the 1099-MISC from Navarr Enterprises Inc dba AudioSparx). Then additionally also add a special expense that is a "correcting duplicate income reported in error" entry which will negate the duplicative revenue reporting and result in a properly computed amount of tax to pay. This method will apparently keep you from getting an IRS CP2000 audit letter as a result of the situation. If for any reason the IRS does not accept this method of reporting the problem to them on your tax return and they request that you obtain a corrected 1099, please contact PayPal to ask that they issue a revised 1099-K showing zero earnings since they should not have revised their tax reporting methodology until after 2023. For our part, we will revise our reporting procedure for 2023 to accommodate the new legislatively-required reporting requirements. Thanks for your understanding. ---
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