Understanding Your 1099-K Reporting Changes for 2022 and Beyond

We’re on a mission to cultivate a business mindset in support of our creative work. If we want to profit from our creative work, we need to do business, and do it well.

Doing business well is a matter of mindsethow you think, and mechanicswhat you do.

What’s new with 1099-K reporting?

One thing responsible business owners do is pay taxes. We pay a variety of different taxes which I walk you through in the Freelance Road Trip core course. But here I want to share some insight into the 2022 changes to tax laws and reporting (in the USA) that will significantly impact your freelance business, depending on how your clients pay you, and how you do business.

The IRS form 1099-K Payment Card and Third-Party Network Transactions is an information return for the purpose of improving voluntary tax compliance. This form will apply to you if your clients pay you by credit card, debit card, gift card, Venmo, Zelle, PayPal, etc.

Up until this year a 1099-K was issued to you and the IRS by your payment processors when your gross payments from any single processor (PayPal, Square, Stripe for exampe) exceeded $20,000.00 and there were more than 200 transactions of that type. 

Starting in 2022, there’s a drastic difference. Your payment processors will report all transactions that exceed $600.00. That’s correct, the criteria is now the same threshold as for the 1099-NEC and 1099-MISC. 

How does this change impact you? 

You will need to keep very accurate bookkeeping records and be diligent to report ALL income you receive in a calendar year from your freelance business on your Schedule C. 

Whether you use bookkeeping software or a double-entry spreadsheet system, it’s crucial to track your income and expenses. Failing to report all your income puts you out of compliance, and reporting mistakes can be costly. 

It’s simply good business practice to keep accurate records, not only in the case of an IRS audit, but because it helps you understand the health of your business, where your income is coming from, and which clients are most valuable to you. 

Reconcile your bank accounts and do your bookkeeping regularly and consistently. At least every quarter (every three months), but preferably every month, download your bank and credit card transactions and update your records. Assign every dollar spent to its appropriate category (office supplies, utilities, software subscriptions, for example), and every dollar received to its appropriate category.

What types of income categories might you track as a freelance creative? 

  • Income from clients
  • Income from sales of products (digital courses, templates, art prints, printables, stickers, stock images, etc.)
  • Income from affiliate sales
  • Income from NFT sales
  • Income from commissions
  • Income from teaching, coaching, and speaking gigs
  • Income from subscriptions you offer
  • Income from grants
  • Income from scholarships

By updating your financial records frequently you will gain a real-time, accurate picture of how your business is doing and the basis to make decisions and set goals for growth. 

Keep accurate financial records even if your freelance activities are part-time or a side gig.

And know the difference between income, gifts, and reimbursements. You are required to voluntarily pay income taxes on all the income you earn, whether it’s active or passive (an example of passive income is affiliate sales). You don’t owe income taxes on gifts of money (up to a certain amount),  expense reimbursements, or projects where you’re paid less than $600.

If you already report all your freelancing income and keep accurate accounting records, this tax law change will have no impact on you.

Just keep on doing what you’re doing.

As always, consult with your CPA or tax attorney. Here’s the disclaimer:

DISCLAIMER: I am not an attorney or CPA. This information is offered in good faith for general education purposes only and is not exhaustive. It is not intended as legal advice or opinion. I do not make any warranty about the completeness, reliability, or accuracy of this information. Any action you take based upon this information is strictly at your own risk. I am not liable for losses and damages in connection with the use of this information. You should seek legal and other professional advice when establishing or conducting a freelance business.