A new tax law ushered in by the American Rescue Plan sets a much lower threshold for reporting business transactions made using payment apps such as Venmo, PayPal and CashApp.
Beginning in 2022, such third-party payment processors are required to report business transactions to the IRS if they top $600 for the year. Before the change, that threshold was $20,000.
The new rule, contained in the American Rescue Plan passed in March 2021, applies to payments received for goods and services, according to a report by Fox Business. It does not apply to the use of such pay services for such actions as sending gifts, paying rent or reimbursing a friend for dinner.
It also doesn’t apply to anyone using such apps to sell personal items at a loss.
While the rule took effect this month, it does not apply to the 2021 tax season, meaning business owners won’t have to worry about it until preparing to file 2022 taxes.
According to the Fox report, business owners are already required to report these incomes to the IRS. The new rule, the network said, simply means the IRS will figure out what business owners earned on the cash apps regardless of what that individual actually reports on their 1099-K because it broadens the scope of the threshold.
Form 1099-K is used to report goods and services payments received by a business or individual in the calendar year, but there are certain exclusions from gross income and are therefore not subject to income tax.
The cash apps will now be required to send users who meet the newest requirements Form 1099-K for transactions made electronically or by mail.