Update on 1099-K Reporting

At the end of 2022, the IRS announced it was delaying the implementation of the new 1099-K reporting requirement. The goal was to give companies and taxpayers more time to prepare for these updated guidelines and lawmakers an additional chance to increase the lowered threshold. Well, a year has passed and it appears we are no closer to increasing the $600 threshold, so taxpayers must be prepared to receive 1099-Ks.

Who will receive Form 1099-K?

First, and most importantly, the new Form 1099-K reporting requirements do not apply to payments sent via “friends and family” or an equivalent feature. If you are simply receiving payments from friends and family members, you will not receive a 1099-K, regardless of the amount of transactions processed.

However, if you have received more than $600 in payments, using a third-party payment processor, without using the “friends and family” approach, you will receive a 1099-K at the end of the year. This includes selling items on Ebay, withdrawing from an online gambling site, ticket reselling, or garage sales. Just because you receive a 1099-K, does not mean the entire amount is taxable. You must properly report your gross sales and cost of goods sold on your tax return to determine the total net income from these transactions.

How does this affect gamblers?

If you gamble online, you may have used PayPal or another payment processor to withdraw from online sportsbooks and casinos. If you withdrew more than $600 using one of these platforms in 2023, you will receive a 1099-K detailing your total withdrawal figures.

But here’s where it gets tricky. Gambling winnings and losses must be reported as incurred. The amount and timing of deposits and withdrawals does not impact your reportable winnings and losses each year. This means, you could be correctly tracking your winnings and losses, but still receive a 1099-K in addition to these figures, based on your gross withdrawals.

In general, any 1099-K received in relation to online gambling is not an accurate depiction of your overall gambling winnings. It is your job to properly report your correct gambling winnings and losses on your tax return each year. You must also reconcile any amounts shown on any 1099-Ks received and report them as nontaxable. If you fail to report this income, you will receive a notice from the IRS.

If you think this applies to you, it is best to do some research or reach out to your tax professional to ensure all income is reported correctly (and only taxed once). Remember, while most gambling withdrawals reported on 1099-Ks are not taxable, they must be reported to the IRS each year.