Are you wondering why you are receiving a new 1099K form from PayPal, or Amazon, or other payment processors this year? The 1099K is part of an effort by the Internal Revenue Service to close the “tax gap”. So now you wonder what is the tax gap? The tax gap is simply a term used to describe the difference in total income tax that taxpayers voluntarily report compared to the amount that they should have reported. You might look at it as the amount of taxes that taxpayers attempt to avoid paying.
Nobody likes to pay taxes, but I think most people are honest and want to pay their fair share of taxes. Of course, sometimes doing your taxes is complicated. The theory is that the higher the tax rate and the more complex tax laws become, the more people are likely to not report the correct amount of income on their tax return each year. Plus you will always have a portion of the population that just wants to get away with not paying taxes.
What happens is PayPal or any of the other payment processors will send you a copy of a 1099K showing how much you collected in credit card and electronic receipts last year. They will send one to anyone who collected more than $20,000 in these types of receipts during the year. They will also send an electronic copy of all those 1099′s to the IRS, where the information will be entered into the IRS computer system. When you file your form 1040 for last year, the IRS will check what you report in your tax return against what the payment processing company reported on your 1099K.
In fact there will be a new line on Schedule C this year. Line 1(a) will be for merchant card and third party payments. (Here is a tip for you: add up all your 1099K’s and make sure the total agrees with the number on line 1(a) before you file your tax return.) If the numbers don’t agree, you can be sure you will hear from the IRS to ask why.
So don’t stress out too much over the new 1099 form, unless of course you fall into that second category of taxpayer who is trying not pay. That group will find out it is getting harder to beat the system!
Have you received your 1099-K? Login to Outright.com and head over to your “Taxes” tab to verify it against your Outright income today!