Changes to filing requirements for form 1099-K, “Payment Card and Third-Party Network Transactions”

In early 2023, you may get a surprise tax form in the mail. The IRS has significantly changed the reporting requirements for form 1099-K and these rules go in to effect for the 2022 tax year.

Form 1099-Ks are issued to individuals, partnerships, LLCs, and corporations who earn income for goods/services through digital payment methods (i.e. Paypal, Venmo on sites like Etsy, eBay, Airbnb, Amazon…basically any third-party marketplace or payment processer). The threshold for reporting was much higher in prior years, only requiring a 1099-K to be issued for payees who earned over $20,000 AND the number of transactions to the payee had to exceed 200.

The new rules for 2022 and onward will instead require 1099-Ks to be issued to any payee who was paid over $600. There is no longer a threshold for the number of transactions either.

Personal payments may be included on your 1099-K indiscriminately. This may make your return more complicated, as the IRS will see these as a business transaction. Keeping organized with your third-party platforms will help when we get to tax season.

Child Tax Credit reverts to 2020 limits and Child/Dependent Care Credit reduced

Taxpayers can only claim $2,000 per child (down from $3,600) with the Child Tax Credit in 2022. The advanced child tax credit payments are also no longer in effect.

Child and dependent care maximum qualified expenses have also been lowered. You can claim up to $3,000 in qualified expenses for one child or $6,000 for two or more children in 2022. As a result of the American Rescue Plan, last year’s Dependent Care Credit expense limits for 2021 were temporarily much higher: at $8,000 and $16,000 respectively. You can claim a credit only up to 35% of qualified expenses in 2022 (down from a 50% maximum in 2021) and there is a lower AGI phaseout in 2022.

Virtual currency reporting requirements will be expanded

If you use cryptocurrency, be aware that the IRS reporting requirements for brokers will become stricter in 2023 and many brokers are already proactively changing how they report in 2022 as well.

Keep the following changes in mind for your 2022 tax preparation:

• The Standard Deduction increased anywhere from $400-800 for most taxpayers depending on your filing status. See this year’s standard deduction amounts below:
  • $12,950 for Single filers
  • $25,900 for Married filing jointly
  • $19,400 for Head of household filers
  • $12,950 for Married filing separately
• The Maximum Earned Income Tax Credit went down by almost $1,000 for individuals without children, but was increased slightly for those with 1 or more children. Here are the maximum tax credit amounts for 2022:
  • $560 for filers without children
  • $3,733 for filers with 1 child
  • $6,164 for filers with 2 children
  • $6,935 for filers with 3+ children
• 2022 Business Mileage rates went up by 2.5 cents to 58.5 cents per business mile driven.
  • Due to high gas prices, there was an unusual mid-year adjustment to 2022 business mileage rates, allowing 62.5 cents per mile to be deducted for travel during the second half of the year (7/1/22 through 12/31/22). Be sure to keep careful mileage records during this period.
• Business meals are 100% deductible in 2022 in an effort to help restaurants recover from the effects of the pandemic.
• The additional $300 charitable deduction for non-itemizers is no longer in effect for 2022.
• Applications for federal student loan forgiveness opened in October of 2022. Be sure to apply for forgiveness before the December 31, 2023 deadline.

Tax brackets and rates shifting with high inflation

The taxable income brackets are shifting upward approximately 3-3.8%. See the table below for this year’s tax brackets: