Starting 1st January 2022, US freelancers using PayPal, Venmo, Credit Card, or any other payment service providers will be required to have their payment information recorded in Form 1099-K for services and goods transactions. This is in fulfillment of the American Rescue Plan Act of 2021 that was passed by Congress early this year.
How Form 1099-K works for freelancers
Form 1099-K is an IRS form that is used to record payment received from services and goods sold by an individual or business in a year. Payment service providers like PayPal are supposed to send customers the form if they make over $600 in a year. However, you will not be required to fill Form 1099-K if payment received falls in the following categories
- If you sell items at a loss
- If you receive payment for reimbursement
- If you receive payment as a gift
- If you receive payment from Friends and Family (in PayPal and Venmo)
What action should you take?
If you are using PayPal or Venmo, you will receive a notice asking you to provide your tax information if you had not provided them.
You will not be able to receive PayPal payment for goods and services without providing your tax information.
United States freelancers will be required to consider the amount indicated in Form 1099-K when computing their taxable income for the 2022 tax year.
IRS will use Form 1099-K received from payment service providers to check for any tax discrepancies.
NOTE 1: Form 1099-K should be issued by payment service providers, not clients.
NOTE 2: Don’t mix payments from family and friends with business payments
Read more about IRS, Form 1099-K