Saying that tax rules are confusing is an understatement. Sometimes they’re almost impossible to understand. When it comes to requirements for reporting certain income, expenses, or transactions, sometimes thresholds apply when a certain limit is reached. Other times, the thresholds are triggered when amounts exceed a certain limit. For business owners, understanding the correct threshold is essential to comply with reporting requirements and avoid penalties.
Understand the correct information reporting thresholds:
Payments to independent contractors.
If payments are at least $600 in one year to an independent contractor, they are reported on Form 1099-NEC. This form is due to the IRS by January 31 of the year following the year of payment(s). It’s provided to the independent contractor (on paper or electronically) by the same date…January 31.
Certain other payments.
If rents, prizes and awards, fish purchased for resale, royalties, and certain other payments are at least $600 in one year, they are reported on Form 1099-MISC. Reporting to the recipient is due by January 31. Providing copies to the IRS is due by February 28 (or March 31 if filing electronically).
If a business receives a cash payment more than $10,000, it must be reported to the IRS on Form 8300. This form must be filed by the 15th day after the date the cash transaction occurred. This IRS form can be filed with the IRS or e-filed through the Treasury’s BSA-E-Filing System.
Card payments and third party network transactions.
If you accept payment via credit/debit card, PayPal or ApplePay, Venmo, or other electronic payment format, the processor must report the payments to the IRS (and provide the information to you) on Form 1099-K if payments for the year are more than $600. Before 2022, the threshold was more than $20,000 plus more than 200 transactions. The number of transactions no longer applies. Reporting is due by January 31 of the year following the year of payment(s). This means that in 2023, many gig workers who accept payment through electronic transfers will receive information returns for the first time.
Applicable large employers.
An applicable large employer (ALE) for purposes of the employer mandate to provide health coverage or pay a penalty is an employer with an average of at least 50 full-time or full-time equivalent employees. ALEs are required to provide employees Form 1095-C; Form 1094-C is sent to the IRS. The deadline for furnishing the form to full-time employees (as well as part-timers enrolled in the company’s group health plan) is March 2nd of the year following the year of coverage (the IRS has annually set this date and proposed regulations would adopt it). Copies of the employees’ forms, along with a transmittal Form 1094-C, must be sent to the IRS by February 28 for paper forms, or March 31 for filing electronically.
If your corporation paid out dividends of at least $10, they must be reported to the shareholder(s) on Form 1099-DIV. Reporting to shareholders is due by January 31 of the year following the year of dividends; it’s February 28 for reporting to the IRS for paper forms or March 31 if filing electronically.
In sports betting, over and under is commonly understood. When it comes to information reporting, “at least” or “more than” are the key words to watch for in order to comply with the tax rules and avoid penalties.