IRS $600 Reporting Rule: What Online Sellers Need to Know

The IRS has announced new regulations that will require individuals who earn over $600 for the transaction of goods and services through third-party payment platforms to report their income with a 1099-K tax form. With a lower threshold for triggering this form, more people with side hustles and small businesses will be reporting their earnings to comply with these changes. Cyndi Thomason shares more on what this means for Amazon sellers and the like in this guest post.

There's recently been a lot of talk about the American Rescue Plan of 2021 that takes effect in January 2024 after two years worth of delays. This plan requires 1099 reporting from third-party settlement organizations and payment processors to report payments for goods and services if they exceed $600 per year. Previously, the threshold for reporting was $20,000. So, what does the IRS $600 reporting rule mean for you as an Amazon seller?

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Your Questions, Answered

To get the latest update on the IRS $600 reporting rule, I spoke with Mario Lucibello, CPA, a partner with Greenhaus Riordan & Co, LLP in New Milford, Connecticut. Mario is an eCommerce tax accountant who has been a great resource for bookskeep and our shared clients.

Mario shared some good news:

If you are an Amazon business, you likely already meet that $20,000 annual threshold and already get the 1099s. Amazon sellers that are in business to make money are serious about their business finances and will have the systems set up to already recognize that income.

He advised that this may be more of an issue for taxpayers on a personal level. For example, for those of you who use platforms like eBay to sell household items that you no longer use, it doesn't take much to hit $600.

IRS Tightens Reporting Requirements for Sellers Paid Through Apps

The IRS $600 reporting rule applies to all payment processors, such as PayPal, Venmo, Facebook Marketplace, Cash App, and more. It does not extend to payments made to your loved ones for expenses incurred during shared occasions such as dining out, gift-giving, and group travel.

Thanks to the user-friendly nature of these payment apps, you can reach $600 very quickly. However, if you're selling items such as your used golf clubs, it's important to keep a record of the original purchase receipt and the amount you received for selling them. By providing proof of financial loss, you can avoid any tax implications.

There can also be business scenarios that might arise where you should be reporting anyway but haven't been. For example, say you do a little consulting for a friend and they pay you $1,000 through PayPal. It's easy to forget this activity because it's a small amount and it's not your primary income source. Now, the form you receive will be a nice reminder.

No matter the circumstances, once you hit the $600 level, you and the IRS will receive a 1099-K to be paid during the tax period. Mario recommends that you mark your calendar to check your payment platforms for tax documents.

You will want to discuss these 1099s with your tax preparer as the IRS will be scanning your tax returns expecting to match that 1099 to income on your tax return.

You can catch up on the history of the IRS $600 tax rule for individuals -which has delayed until next year- here.

What Has Amazon Said About the Subject?

Here's what Amazon had to say on its IRS Form 1099K - Form Generation and Payee Information FAQ page in Seller Central:

There has been a recent change in tax reporting rules relating to US third-party settlement organizations and payment processors, including Amazon. The law reduces the thresholds from $20,000 in unadjusted gross sales and more than 200 transactions down to $600 and no transaction threshold. However, the Internal Revenue Service (IRS) has delayed the effective date of the new reporting threshold.

You can expect to receive your Form 1099-K from Amazon electronically or through physical mail delivery, depending on your preferred method. If you don't specify your preference, Amazon will default to mailing the form to the address that you've provided.

To access the Form 1099-K in your Seller Central account, head to the Reports section and select the Tax Document Library for the relevant year. Remember to sign in as the primary user as only this person can view the forms.

Good Record Keeping is Key

By keeping meticulous records of your personal and business finances, you can avoid any unpleasant surprises when tax season rolls around next year. Don't let your earnings from third-party marketplace apps catch you off guard – stay organized and prepared. It's also highly recommended that you set aside approximately 20% of these earnings for tax purposes.

Of course, those clean records take time, so if you don’t have any, or just don’t love being in the books, we can help. Reach out to the bookskeep team today!

More from Cyndi Thomason

Looking to boost profitability in your eCommerce business? Look no further than my book, Profit First for Ecommerce Sellers. This must-read guide offers valuable insights on implementing Profit First strategies to take control of your money and your business. And, don't miss out on the Profit First for Ecommerce Sellers Online Course.