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1099-K Tax Changes: Third-Party Payment Vendors and the Gig Economy

Buying habits have changed throughout the world as more landscapers have started to accept third-party payment networks such as PayPal and Venmo. Specifically from the gig economy of contractors who are doing jobs on a freelance or ad-hoc basis and take payments through these third-party networks.

It’s a win-win for everyone, as landscapers get the labor they so desperately need in shortage times, and these gig workers get paid quickly.

However, as tax season comes around, landscape business owners need to ensure they are filling correctly and reporting accurately. Let’s look at the changes to the 1099-K and see how it affects business owners today.

Understanding the 1099-K

This dates back to 2008 as a way to ensure online retailers were reporting the proper amount of sales for tax purposes. Payment card companies, such as Visa and MasterCard, as well as online third-party networks such as PayPal and Venmo must report payment transactions they have processed for the retailer.

These payment networks would give a 1099-K form detailing the transactions with an online seller for tax purposes. The seller would also receive a copy of the form as well to keep for their own records.

For any landscaper who has ever accepted a payment online, you will have already ended up with a 1099-K form that shows you all transactions, and an overview of the sales with each payment card company.

A Shift in Tax Reporting

The guidelines for issuing a 1099-K shifted, however, through the end of 2021 after the American Rescue Plan Act came into effect to help with the COVID-19 pandemic. By the end of 2021, 1099-K forms were required from PayPal, Venmo, and other payment card networks if:

  • From card transactions (e.g. debit or credit cards)
  • From third-party payment networks (PayPal and Venmo) transactions if they processed more than $20,000 and more than 200 individual payments.

Some landscapers could do large jobs well over that threshold, but be under the 200 individual payments, while small jobs could easily crack the 200 payment threshold and add up quickly due to new buying habits.

The New 2022 Tax Season Brings Change

In 2022, however, the tax code has changed again and the 1099-K form is being altered. And this altering of the tax code will affect nearly every landscaper, as the updated guidelines now say a 1099-K is required if: The card or payment network processed $600 or more in transactions for the year, regardless of the total number of transactions.

This can affect every part of the landscaping business, as a single design could be over $600, or a maintenance contract for weekly grass cutting. This also means that landscapers will have to be mindful of these forms even when they are hiring freelancer workers from the gig economy because $600 in work can be used up quickly.

Most gig workers will earn less than $20,000 over a year, so they wouldn’t have received a 1099-K form and would misreport their income come tax season. This lower threshold now means more people taking on side work will be able to file their taxes and income accurately when they need to.

Next Steps Landscapers Can Take

If you are a landscape company that uses any form of online payment, either through third-party websites, auction or service-for-hire websites, or accept payments through Paypal and Venmo, and you would reach the $600 threshold, the payment company would send you a 1099-K form for reporting.

It’s important that you review your sales, which can be completed using landscaping business software such as Manage360, as it houses all your landscaping jobs in one location. Then, match what you have in your reporting to ensure you have the correct forms.

Landscapers could see it coming from two directions, as they may be receiving 1099-K forms for being a retailer of landscaper services, which they could offer through their website. They can also trigger a 1099-K form if they are buying services from a contract worker and paying them through a payment card network or PayPal, as over $600 in payment would trigger a 1099-K form from the IRS.

Ensure you have the right 1099-K forms for the upcoming tax season and match them in your Manage360 solution. Contact your tax professional for guidance to ensure you remain compliant through tax season.