A Quick Guide to the New Tax Rule in 2022

There are three certainties in life: death, taxes, and new tax rules.

We know filing taxes can be stressful. But it’s a necessity that keeps the world going.

Plus, getting taxes off your to-do list gives the peace of mind that you’re in the IRS’s good graces.

If you’re a freelancer or small business owner, there’s a new tax rule for 2022 you should know.

What’s New This Tax Season?

Creatives, solopreneurs, and independent contractors who use payment services like PayPal may need to contact a tax consultant this season. That includes anyone who uses payment settlement entities that accept credit cards.

In 2022, if you earn more than $600 a year, you’re required to report it to the IRS.

It also doesn’t matter if you manage to make that amount with just a handful of transactions.

Previously, the gross-payments threshold was all the way up to $20,000 in one year. There was also a threshold for the number of transactions made (200).

If you don’t exceed any of those thresholds, it’s easy to “forget” mentioning your extra earnings in your tax report. But with the new rule, even side-hustlers who buy and sell online need to up their honesty game.

Effects of the New Tax Rule for Freelancers and Small Business Owners

In addition to a change in reporting requirements, the new tax rule for freelancers and businesses will mean the following:

1. Payment services will ask for your tax information.

If you haven’t already, be sure to provide your tax information to your payment service provider. According to PayPal, users will be asked for their tax information in the following months. This could be their social security number, employer identification number, or tax identification number (TIN).

Other payment services like Venmo state that payments will be put on hold until users confirm their tax information.

2. An additional form will be presented to users to identify the nature of each transaction.

The new tax rule for businesses will have a negligible impact on their customers’ checkout experience.

If you sell products or services online, customers will be simply asked to verify the nature of each payment. For compliance, instruct them to choose the option that indicates payment for goods or services.

3. Freelancers and small business owners will receive a 1099-K form from payment services.

From the start of the 2023 tax season, payment service providers will issue a Form 1099-K to sellers. That is, if they made $600 or more from payments for services or products.

Here are a few things to remember from this change:

• Independent contractors that receive payments from a company via a payment processor can disregard the 1099-K. So, unless you make over $600 from other transactions, you only need to file the 1099-MISC form provided by the company.
• For 1099-K forms received in January 2022, the old reporting requirements will still be applied. That includes the $20,000 threshold for gross payments and the threshold for the number of transactions.
• For small businesses, you may need to withhold taxes from payments to contractors without their TIN. Doing so will help you ensure compliance and avoid penalties.

Final Thoughts on the New Tax Rule for 2022

Whether you’re into freelancing or digital entrepreneurship, you need to know the latest tax rules each season.

Yes, the new rule will affect millions of freelancers and small business owners. Yes, some won’t be happy with the implications.

No, you don’t have to deal with them alone.

Fiverr is home to over a thousand freelance tax consultants. Let them handle your hair-pulling, tax-related tasks so you can focus on what really matters: growing your business.

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