- Anyone who earns $600 will get a 1099 form in the first quarter of next year.
- Beginning in 2023, the Internal Revenue Service will have a detailed understanding of how much millions of side hustlers have made.
An obscure provision in the American Rescue Plan Act of 2021 lowers the threshold for reporting third-party payments to independent contractors, freelancers, gig workers, AirBnB hosters, and small business owners. While the change has been discussed for years, it was not implemented because of political opposition.
Who will it influence?
If you receive $600 or more for providing goods or services in 2022, you can expect to receive either a Form 1099-NEC or a Form 1099-K early the following year — just in time to file your taxes. If you receive less than $600 for providing goods or services in 2022, you can expect to receive either a Form 1099-NEC or a Form 1099-K early the following year.
Must read: Did These 2022 Social Security Changes Fall Under Your Radar? Check here!
Check your bank account for IRS Form 1099-NEC if you are an independent contractor who receives payment in the form of a check, cash, money order, or direct deposit into your bank account (which replaces the old 1099-MISC). If you receive payment from a third party, such as PayPal, you will be issued a 1099-K.
What is the most important thing to keep in mind? The Internal Revenue Service (IRS) will get a copy of the same 1099. When you submit your 2022 tax return, the Internal Revenue Service will know whether you made $600 or more.
A big difference
1099 forms are only given to you (and the IRS) if your total yearly payments amount to more than $20,000 and are spread over more than 200 transactions, according to current legislation.
Consider the following scenario: you’re a pianist who sometimes fills in for a local band and gets paid by check. In the year 2021, you earned a total of $7,500. A 1099-NEC is not needed to be sent to you or the IRS since your profits did not exceed $20,000, as required by the Internal Revenue Service (IRS).
However, by this time next year, the situation would have changed. A 1099-NEC would be sent to you and the IRS if you earned more than $600 in a calendar year.
The same restrictions apply whether you charge customers directly or operate via a hiring platform such as Upwork, Uber, Rover, Lyft, or any similar service (among others). When you reach the $600 barrier, the Internal Revenue Service (IRS) wants to know about it.
Approaching a loophole
As previously stated, discussions regarding addressing this specific tax loophole have been ongoing for some years. It is believed that when individuals feel the IRS has no method of learning about their income, they are less inclined to disclose it.
You should anticipate third-party settlement companies to seek your Social Security number or Employer Identification Number this year, according to the legal resources website Nolo.
They will need one of these identification numbers to record your income. If they cannot get a valid identification number from you, they are legally compelled to withhold 24 percent of any earnings over $600. That cash will be transferred to the Internal Revenue Service.
What if you utilize a third-party payer for more than work?
Consider the following scenario: you routinely use PayPal to pay for products and services, but you also get paid for labor you provide via the platform. Only the money you make via PayPal will be reported to the IRS; money spent or transferred to friends and family will not be included.
The upside
The amount of additional money that will be deposited into government coffers is unknown at this time since we do not know how many small company owners and craftspersons, freelancers, and gig workers fail to disclose their income each year.
We know that people who disclose all of their income have several advantages: they are less likely to be audited.
It balances the playing field.
Consider the following scenario: you own a modest Etsy business. You’ve always declared your earnings and paid your taxes on time. On the other hand, some of your rivals do not disclose their income or pay taxes, and since their costs are lower than yours, they may undercut your rates.
It makes life more manageable at tax time.
Obtaining 1099s allows you to assess how much money you made the previous year swiftly. Those records may also serve as a reminder of permitted company costs that you may have forgotten about.
There’s less cause to bother about an audit.
If you’ve made every attempt to record your earnings correctly, you shouldn’t be alarmed if you discover a mistake on your tax return that has to be corrected; in this case, you shouldn’t be alarmed. A letter from the Internal Revenue Service does not always signal a problem.
Change is not something that we humans are particularly fond of. When presented with a new method of doing things, our brains see it as a danger and produce hormones that prepare us to fight or flee. Likewise, this alteration will take place.
Understandably, some individuals would be furious and offended since this is not how they are used to doing business. On the other hand, everything new gets old as we grow used to our new world. When we look back on our lives, it will be impossible to recall a period when we didn’t get 1099s.
Alert: highest cashback card we’ve witnessed currently has 0% intro APR until 2023
A credit or debit card that you use incorrectly might result in you incurring significant financial losses.
According to our expert, this best selection offers a 0% initial APR till 2023, a special cashback rate of up to 5 percent, and all of this for the low, low price of no annual fee. This card is so amazing that our expert even utilizes it for their purposes.
