A new tax rule is coming into effect in 2022, one that will impact millions of small businesses.
New Small Business Tax Rule for 2022
Reports state that the new tax rule in due to a small change within the American Rescue Plan Act of 2021. The Act is a $1.9 trillion economic stimulus bill designed to facilitate US recovery from the economic and health effects of the pandemic.
According to reports, as of the start of 2022, small business owners or freelancers that get paid from a digital payment service of a third-party settlement provider that accepts credit cards of their behalf, will be required to report the amount to the IRS. This is providing the amount received is more than $600 in total during the course of the year.
Of course, small businesses should be reporting such income anyway, but it is not uncommon for the reporting of small payments to be forgotten.
Due to the tax change, the IRS will be able to find out what a business has earned regardless of whether it is reported or not.
Etsy, eBay and Amazon Sellers Can Expect to Receive 1099K Form
Reports stipulate that businesses selling on the likes of Etsy, Amazon or eBay, can expect to receive a 1099-K form – after January 31, 2023 – from the payment services they are using of the revenue the services reported to the IRS on the business’s behalf for purchases made in 2022.
Additional Questions Asked
In a press statement about the new tax reporting changes, PayPal warns that businesses can also expect to be asked additional questions from their payment service provider.
“You may notice that in the coming months we will ask you for your tax information, like a social security number or tax ID, if you haven’t provided it to us already, in order to continue using your account to accept payments for the sale of goods and services transactions and to ensure there aren’t any issues when these changes take effect in 2022,” PayPal notes.
Personal Gifts Will be Excluded
As Bloomberg Tax reports, it is important that small businesses are aware that transactions for personal gifts, charitable contributions and reimbursements are specifically excluded from Form 1099-K reporting.
Fillers of a 1099-K form must report the gross amount of reportable transactions for each month and for the entire year in sperate boxes on the form.
It is vital that small business owners, freelancers, gig workers, and other individuals that handle their own tax affairs are aware of the changes in tax reporting rules.
For any business earning more than $600 through various online venues can expect to start receiving Form 1099-K.
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