New Form 1099-K Requirements

Important 2022 Tax Reporting Change: Form 1099-K now required for $600 or more payments received

Affects cash transfers like Venmo, Paypal and StubHub sales and receipts by for Uber, Lyft, and Uber Eats drivers

Changes to Form 1099-K

The American Rescue Plan, a $1.9 trillion COVID-19 relief package, was signed into law in March 2021 - and brought with it a significant new reporting threshold regarding Form 1099-K.

Form 1099-K is used to report payment card and third-party network transactions. Prior to the passage of the American Rescue Plan, third-party networks did not have to report and send out Form 1099-K unless aggregate payments total $20,000 or more and aggregate transactions were 200 or more per year. Under the American Rescue Plan, the threshold has been reduced to $600 or more per year effective for payment transactions after December 31, 2021.

Impact on third-party settlement organizations

If you are a third-party settlement organization (TPSO), there will be more tax filings required over the course of the year. Most TPSOs do not obtain a participating payee’s TIN until they exceed 200 transactions, but they will now need to acquire them once the participant receives more than $600 in payments. This could potentially complicate the tax filing process and cause excessive backup regarding withholding obligations. Note that as result of this new rule you may receive a request for a TIN if you personally transferred money of $600 or more using a variety of cash transfer services.

Impact on individuals and amount received as taxable income

If you are an Uber or Lyft driver, this should not change anything as you are required to report the income you receive as a driver whether you received a 1099 or not. The lower threshold will now make it far more likely you will receive a 1099-K from Uber/Uber Eats and/or Lyft.

Uber and Lyft complicate things, however, because the total that they report on the Form 1099-K is more than what is deposited into your bank account. The difference is a service fee, which is similar to processing fees you pay to PayPal or other payment processors. You will need to keep track of those fees to deduct on your Schedule C.

Tracking your expenses and miles, if necessary

The good news is that you are not taxed on the aggregate gross payments reported on Form 1099-K but rather on the net profit from your business, or what’s left over after you deduct your expenses. This means you will need to keep track of your expenses to claim as deductions on your Schedule C.

Expenses associated with this type of self-employed businesses include: phone expenses (portion of your phone expenses related to your business use), drinks/snacks for customers, city and airport fees, tolls, etc. Since you are using your car, you can take the mileage deduction based on the miles you drive to, from and during ride requests. You may want to consider obtaining a good expense and mileage tracking app for your smart phone such as Hurdlr, Stride Tax, Triplog, Wave, or Mystro.

For additional information and help for tax planning in regards to being an Uber or Lyft driver contact your Herbein advisors at info@herbein.com

Article prepared by Emily Nolt