Between increased e-commerce, changes in work and buying habits, and COVID-19, the financial picture for companies and individuals alike has drastically changed. What’s more, the rising gig economy has transformed the tax landscape, bringing with it rising inaccuracies.
So how do you ensure that payments and taxes are reported accurately? You give major guidelines a facelift.
One of the biggest shifts has been for 1099-K reporting. We’ll walk you through what’s changed and why. Plus, learn how Service Fusion helps you keep your transactions straight for easier reporting later.
American Rescue Plan Act
In 2021, the American Rescue Plan Act implemented several measures in an effort to help people and the economy in the face of COVID-19. That’s why we’ve seen things like direct stimulus payments, extended unemployment, business relief, pandemic response, and more. But among those changes was also a shift in tax reporting for 1099 workers and vendors.
Understanding the 1099-K
Between the 1040, W-2, and W4, it’s hard enough to keep up with tax forms! Then you have to add in the 1099-K, which covers solopreneurs and vendors.
The IRS requires payment card companies (e.g., Visa and Mastercard) and payment networks (e.g., PayPal and Venmo) to report transactions on behalf of a retailer. Each of these companies gives the IRS (and the retailer) a 1099-K form that details all their transactions with a retailer for tax use.
But again, with the American Rescue Plan Act in play, times they are a-changin’. We have the details on the “then and now” when it comes to the 1099.
The Old School 1099-K Processes
The guidelines for issuing 1099-Ks looked a little different through the close of 2021. Until then, a 1099-K form was required for yearly transactions exceeding $20,000 via PayPal, Venmo, and others.
This form is required under specific conditions, including:
- From card transactions (e.g., debit or credit cards)
- From third-party payment networks (e.g., PayPal) transactions if they processed more than $20,000 and more than 200 individual payments
Of course, $20,000 might seem like a lot. But with how folks have shifted their buying and how business has changed, it adds up fast.
The New School 1099-K Policy
But forget what we just told you, because we’re starting with a clean slate in 2022 and beyond. Businesses and payment vendors are now required to file 1099-K at a significantly lower threshold.
Under the updated guidelines, a 1099-K is required if:
- The card or payment network processed $600+ in transactions for the year, regardless of the total number of transactions
Going from $20,000 to $600 is a substantial dip, but it’s meant to course-correct tax reporting problems that existed at the higher threshold. The gig economy has blown up since the start of the pandemic, so taxes got way trickier. Plenty of gig workers earned less than $20,000 a year, so they didn’t receive a 1099-K form and were misreporting their income. With a much lower threshold, people in this boat should be able to more accurately file taxes.
FusionPay Makes Payments and Taxes Easier
FusionPay by Service Fusion manages credit, debit, and ACH payments all in one platform. You get the convenience (and avoid any confusion) with a single merchant account for transactions, plus it’s simple to review payment history, including status, sale type, payment method, and more.
It works just as easily as big-box payment processors like PayPal and Venmo, but FusionPay is built with field service in mind. Accept mobile payments for services anytime, anywhere without worrying about tagging things as business payments instead of personal payments.
Plus, FusionPay is equally easy for both your customers and your business. It will help simplify operations, accelerate cash flow and deliver a safe, convenient payment experience for your customers. The best part? FusionPay tracks everything for you, so you keep your books cleaner—making revenue clearer.
Keep Your Payments Organized with FusionPay and Service Fusion
The last few years have rocked our way of life, so aside from wearing masks and using more hand sanitizer, long standing processes like 1099-K reporting had to change. The shift from a $20,000 down to a $600 threshold will hopefully help many workers and service businesses, but it’s bound to be confusing for a while.
How will the new tax reporting requirements affect you in 2022? FusionPay can help your business stay organized. Get prepared and get on the right track with Service Fusion. Request your demo today.