The threshold for reporting what is generally referred to as “third-party payment settlement entities” on Form 1099-K has been decreased by the IRS starting in 2022. It was a sharp decrease from $20,000 to only $600.

The American Rescue Plan Act of 2021, which included this modification, caused shockwaves across the small business industry and beyond. Previously only a tiny percentage of small enterprises were subject to a requirement; now, it seems to apply to practically all of them. Let’s examine the significance of the shift in more detail.

What Might You Do in Response?

What actions may a small business owner take as they wait to see how everything turns out? Obtaining an expert in an accounting firm in Aventura assistance is the first step. You can avoid any shocks when you receive 1099-Ks by making sure your books and financial records are accurate.

Remember that ACH (automatic clearinghouse) transactions, including credit card payments, can be processed, as well as the reporting, using internet resources. Such instruments are paperless and provide greater security. Thus in the past, we have suggested them. Another strong argument is now available: Managing the review of the anticipated surge of Form 1099-K reporting requirements is made much simpler by automated record-keeping, which also makes it much easier to comply with the new threshold.

To What Extent Will This Affect Your Small Business?

The good news is that it’s doubtful that the change will make it harder for the typical small business to pay taxes in the real world. Together with your financial records, Form 1099-K serves as an informational document that helps you calculate your accurate taxable income.

Given that the 1099-K will now reflect the gross value of transactions handled on your behalf, the move does come with an extra administrative burden for business owners. It will also be painful for the US Treasury. Although many of the activities mentioned on the forms won’t even result in income tax responsibilities, a National Taxpayers Union Foundation issue brief stated that it “is likely to overwhelm both taxpayers and the IRS itself with paperwork.”

A lobbying campaign is being carried out to encourage Congress to reverse the threshold modification or, at the very least, to moderate it so that it drops to $5,000 instead of $600.