Prepare your accounting practice for new 1099 rules

Forms 1099 are changing. As of January 2023, payment platforms like Venmo and PayPal are required to send 1099-K forms when transactions for an individual or a business exceed $600 in a calendar year.  
 
With the new reporting threshold, more individuals will be receiving tax forms and looking to their accounting teams for help. Your practice can take advantage of the change to 1099 laws as an opportunity to provide expertise to your clients — and be their hero this tax season.  

Those who have done freelance work or made money through a side hustle will be familiar with the IRS 1099-K Payment Card and Third Party Network Transactions form. This form is specifically for payments received via a third-party network, like Venmo, PayPal, or Cash App, or credit or debit card transactions. Until recently, earners only received this form if they made $20,000 and had more than 200 transactions in a year. But in 2022, legislation passed that reduced the threshold to $600 regardless of how many individual transactions were recorded. After some delay, the change went into effect in January 2023, which means millions more 1099-K forms will be sent out this year. 
 
The reason for this change? The government is hoping to capture more taxable income from small business owners and gig workers who had previously flown under the tax reporting radar or weren’t aware of their filing requirements. (Note: Every individual and business is required to report all taxable income, but not all were receiving the forms in the mail to do so.)  
 
Businesses and individual taxpayers reporting this type of income may have different requirements for state and federal taxes (especially in states that don’t have state income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming). Plus, some states have combined federal and state filing for the 1099 series of forms. 

There are countless ways to earn money, and looking at the list of 1099 forms, countless ways to tax it. The changes to the 1099 requirements could create millions of additional forms that businesses must send out, file, and keep track of. This will be an enormous burden on the IRS and businesses, and your clients will likely turn to their tax professionals for help.  

Your clients already trust you with their 1040s and W-2s, so it shouldn’t be a surprise when they bring their new 1099s to you this tax season (likely along with many questions about them). If you’re prepared, the form change can create an opportunity for your firm to expand your offerings or boost existing services.

The right technology could help make the 1099 processes more efficient. An automated solution can help you collect, file, and manage the new forms, as well as save time while also reducing the risk of noncompliance.  

Avalara 1099 & W-9 is a powerful tax automation solution that makes it easier to collect, manage, and e-file IRS forms — 1099s, W-9s, W-8s, and more. It allows you to store vendor and freelancer information (while performing real-time taxpayer identification number matching with the IRS), import 1099 payee data, and transfer vendor details for quick turnaround — while automatically checking for errors. If you’re looking to be a hero to your clients this tax year (and all year round), Avalara 1099 & W-9 can help you get there — no capes required.