In a little over six months, the Square loophole will be closed.
You may recall that if you utilize Square or comparable service as your payment platform, you can avoid issuing 1099s to contractors and merchants.
Square is required by federal law currently to submit Form 1099-K with the IRS and mail it to you after you make a purchase. When your earnings are $20,000 or more, and you have 200 transactions or more.
If your client pays you $60,000 through Square, then Square will not be required to issue you a 1099-K because there are no more than 200 transactions in the calendar year.
According to lawmakers, this has created a situation in which Square users have an easy way to cheat.
The American Rescue Plan Act changes the two-step requirement for third-party settlement organization (TPSO) 1099-K filing with a single “$600 or more” reporting level beginning January 1, 2022.
According to the Joint Committee on Taxation, the change in the 1099 standards should generate more than $8 billion in new taxes over the next ten years.
Several states have already closed this reporting loophole on the state level.
If you would like to discuss the new rules, please contact us.
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Spencer Accounting Group, LLC does not provide investment, tax, legal, or retirement advice or recommendations in these blogs. The information presented here is not specific to any individual's personal circumstances.
Keana Spencer is an Accountant, Entrepreneur, and Educator to her clients, with a strong passion. Keana has over 10 years of experience and through her practice, she is a source of knowledge and strategies to her clients.