New 1099-K Forms
I have previously talked about a new IRS rule that is taking effect this year requiring a Form 1099-K being sent if someone receives $600 or more a year from a digital payment platform. This caused some conversation when it was first announced largely around issues where it seemed very likely that some people were going to be receive multiple forms reporting the same money – or receiving forms for money that is not be taxable This will be something that may cause issues for people who did nothing wrong. Recently, though, I saw another article (available here) concerning the new rule saying that it was affecting a specific group – the wealthy.
Then I started wondering, was there something going on here that we did not see when the rule was first announced? Upon reading the article, though, there is nothing that worrying going on here. Instead, it just means that some people (and typically wealthy people) have been paying others in ways that should have been taxed and now it may get caught.
I don’t want to get too in-depth into too many laws here, but the key to a lot of this situation lies in this quote:
“If you pay cash wages of $2,400 or more to any household employee who is not your spouse, parent, offspring under age 21 or other child under age 18, both you and the recipient are each supposed to pay Social Security and Medicare taxes of taxes of 7.65%. If you pay total cash wages of $1,000 or more in any calendar quarter of 2022 to household employees, you also owe the 6% federal unemployment tax, known as FUTA. The IRS defines a household employee as someone whose work you control, regardless of how frequently it’s performed.”
Even if on first glance this sounds like a lot of money, it is really not difficult to pay someone that much money. In fact, give a babysitter $50 a week for a year and you are at $2,600 and should be paying those taxes.
So that means it can be easy to see how wealthy people may have a few different people they are paying this much money to for the upkeep of their lives. The new IRS form rules, though, will just make them pay taxes they have already supposed to have been paying. This is not some new unfair deal after the wealthy.
Let this serve a couple purposes then. The first is just a little more awareness of these new Form 1099-Ks. The second is that if that awareness helps you be aware that you need some help making sure you are doing things the right way, let us know.
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