As part of the American Recuse Plan Act that was signed into law on March 11, 2021, changes were implemented that effects how third-party transaction companies, such as PayPal, Stripe, Venmo, and Square, must report earnings by user starting with the 2022 tax season. Starting in the 2022 tax season, business owners who pay contractors at least $600 through a third-party business account, can be assured a 1099-K will be issued to the contractor, removing any onus and uncertainty from them. They should not issue their own 1099NEC.
If you receive a 1099-K, it should be reported with any other income earned from running your business. As you total your income from your business, you should keep all income received through a third-party payment company separate so the income is not accidently double-counted as your tax return is prepared.
You should also keep good records of any expenses that can be attributed to earning your business income, regardless of receiving a 1099-K or not. This includes not only things like business and office supplies but also business miles and transaction fees. If your business involves selling a tangible product like t-shirts, you should also track the cost of the materials or goods you purchase to create and sell your product.
How Will This Impact My Tax Liability?
All income received while running your business must be reported on your Schedule C and subject to self-employment tax regardless of where the payment comes from so receiving a 1099-K simply adds a paper trail that may not have previously existed. As noted previously, it is critical to separate income reported on any 1099-K forms from other payments, such as cash or check.