A Tax Expert’s Warning: Don’t Make This Costly Mistake if You Receive a 1099-K
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This year, some Performance workersfreelancers and small business owners received an unfamiliar IRS tax form: 1099-K. If you are one of them, how do you report this form in your tax return may trigger unexpectedly Overpay to the IRS.
If you use a third-party payment service, e.g. PayPal, Venmo or CashAppget free income and You earn $5,000 or more through these platforms in 2024. The problem is that you may also get another 1099 seconds with the same income.
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As an IRS registered agent and tax expert, I know that getting two tax forms with the same income can make it easier to accidentally report your income twice. If you receive 1099-K to avoid this expensive error, this is what you should do.
Read more: Best Self-Employment Tax Software
Why do I receive 1099-k?
Form 1099-K is a relatively new IRS income tax form that freelancers and business owners earned over $5,000 through third-party payment platforms in 2024.
this Housing and Economic Recovery Act of 2008Passed after the big financial crisis, including new reports for banks and payment processors to help IRS pass Self-employed person. The IRS estimates that the government has lost nearly half of the tax revenue due to insufficient income for self-employed filers.
This change led to the creation of the Tax Form 1099-k, which was launched in 2012 and requires banks, credit card processors and intermediary payment service providers to send it to any self-employed individual or business who have gone through more than 200 transactions or more than $20,000.
In 2022, the IRS announced that it would lower the threshold for the reporting. After two years of delay, the agency began requiring third-party payment platforms to issue 1099-k to anyone who earns more than $5,000 a year through payment processors. The threshold will be lowered to $2,500 next year and $600 in 2026.
Read more: Who is responsible when your tax expert makes a mistake
Why do I get multiple taxes for the same income?
As a freelancer or gig worker, you can also use it to receive forms 1099-MISC or 1099-NEC For what you do. The company must publish these forms for any work you perform over $600 in a year.
If you are paying through PayPal or Venmo (such as PayPal or Venmo), you can now get multiple taxes for the same income: 1099-NEC or 1099-MISC obtained from the company you work for, and the tax form for the payment platform 1099-K.
This can confuse navigation, especially if you Earn freelance income first. Even some professional tax preparers may accidentally enter the income source and accidentally double-report your income. This can seriously affect your refund, your owed payment or your eligibility for various tax credits.
Report the correct amount of income by you – Don’t expect the IRS to experience overpayment errors. If you are hiring a tax professional to prepare your income, I recommend that you separate the total income from all of their total income in the year from Form 1099 to avoid double reporting income. If you use the online tax software yourself, double check your return to see how it adds up your income from various sources.
in the case of Tax software You do not support corrections to 1099-K, 1099-MISC and 1099-NEC entries to avoid reporting overlapping revenues, and then consider not entering data from these forms into the tax software at all. Instead, you can only enter the total revenue for the year and skip the input of the form 1099.
Are you ready to submit your taxes? Check out CNET’s tax partners.
Record the risk of 1099-K income
Those who receive 1099-KS this year may cause multiple issues.
You may get higher tax bills
If you accidentally double your income, you may be paying more than you actually owe Self-employment tax.
Due to the configuration of the IRS computer system, IRS computer Won’t Detect income overreports and send you a differential refund. If you report too much income, the IRS is just assuming that you are paid for some work in other ways (such as cash or checks instead of electronic payment processors).
You may miss the tax credits, reduce refunds
If your tax return income is higher than actual, it may affect your Qualify for various tax creditssuch as income tax credits earned. You may end up having to repay the excess tax credits you received or receive Low refund More than you have the right to obtain.
How to submit 1099-k
Most freelancers, gig workers and independent contractors report income and expenses on Schedule C of IRS and then attach it to 1040 earnings. To properly report income from all sources, first compare all your 1099-K, 1099-MISC and 1099-NEC forms with your own bookkeeping record to ensure you include all income for the year.
Then, enter this total revenue number into Schedule C, line 1, or the “Total Revenue or Sales” box on the screen in the Tax Software. Entering income in this way is the best way to avoid any double reporting problems.
Schedule C is also where you deduct all qualified business expenses. Your tax software will guide you through Common business deductions for self-employed individuals.
Since you receive 1099-K, make sure to deduct any fees and fees charged to you by the third-party payment processor. The amount of dollars they reported on 1099-K is the total. In your Schedule C, you may deduct any fees charged by PayPal, Venmo, or other payment apps using their platform. These fees can be important, so be sure to log in to your network or app account and total all of them because this is a massive tax break you don’t want to miss.
What if I get 1099-K incorrectly?
Some payment processors may issue an error of 1099-k. For example, if your friends often serve you dinner through Venmo, Venmo may mistakenly mark your account as a business account and issue 1099-K.
If this happens, please contact the payment processor and request a correction of 1099-K. If corrections are not possible, the IRS recommends reporting revenue for 1099-k based on your 1040 (Line I-Line 8Z) and then adjusting it based on other adjustments (Part II-Part 24Z) to cancel it.
Keep your transaction history and the situations that ask questions for the IRS.
Help, I accidentally reported 1099-k. what should I do?
If you have submitted your taxes and think you have reported your income from 1099-K, you should submit it immediately Revised tax returnIRS Form 1040-X. Your tax return software should also be able to generate this form for you.
Under the revised earnings Schedule C, adjust revenue down to the due income and then include a revised return note in the comments section, such as “1099-K Income is included through 1099-NEC”.
Submit electronically to 1040-X for the fastest processing.
Even if you file a revised return, make sure to keep a copy of all payment records and income records so that you can prove to the IRS that the income is actually a double score.
Always double-check your tax return
New 1099-k launch could cause confusion Submit taxes. Make sure you don’t accidentally introduce two different tax forms in detail. Whether you are applying independently, working with an accountant, or using tax software, always double-check your tax returns to find income differences.
If you involve them, the IRS will contact you, but if you overpay, they won’t be marked. You are going to encounter any errors to make sure you don’t accidentally pay too much.
Are you ready to submit your taxes? Check out CNET’s tax partners.
