A major under-reported facet of the massive $1.9 stimulus bill (round 3) is that it strengthens requirements on payment processors like Paypal to report on income received through their platforms:
Beginning on January 1, 2022, third party payment processors will have to report any income for goods or services exceeding $600 during the calendar year on a form 1099-K. Previously, processors only had to report this income if it was BOTH: (a) $20,000 or more during the calendar year, and (b) 200 transactions or more. This allowed most smaller stuff (like Topcashback, Ebates, PFS, Swagbucks payments) to go unreported.
(A few select states such as Illinois already have stricter laws requiring reporting at the $600 threshold, but most areas are currently governed by the federal requirements. Those are changing in 2022.)
This change concerns me for two reasons:
- I’m worried that companies may not always know what is ‘goods and services’ and what is not, leading to misclassifications. E.g. portal earnings are likely rebates and not considered ‘goods or services’, but I’m not confident that Paypal will classify that correctly.
- Even if everything is correct and it’s income that I’m reporting anyway, it still adds a level of complication to everything, e.g. making sure the tax form is directed to the correct entity (personal or business), and having to burden your accountant with multiple small tax forms from a bunch of random companies.
Whether or not you get a tax form does not change what you actually owe, e.g. if you don’t get a tax form you still have to report income earned, and if you do get a tax form you can still reduce the earnings to what was actually taxable business profit. But it could still create a hassle with all this.
Interestingly, if you earn $500 from Topcashback and $500 from Ebates, and have them both paid via Paypal, then you might get a 1099-K from Paypal, but if you get paid from Topcashback and Ebates directly to your bank, then you should not get a tax form.
You can read the full stimulus bill at this link; section 9674 is what we are discussing in this post:
SEC. 9674. MODIFICATION OF EXCEPTIONS FOR REPORTING OF THIRD PARTY NETWORK TRANSACTIONS.