The various third-party payment apps that have become popular in recent years have changed the game for sure. PayPal, Venmo, Cash App… just to name a few. We all use our favorite apps for different reasons, but moving forward, things won’t be as simple as pressing a button.
The IRS recently released a tax law requiring those conducting business on third party payment apps to report all transactions exceeding $600 in a calendar year. The new law went into effect on January 1, 2022, so business owners need to be documenting those transactions carefully from this month on. Taxpayers who cross over the $600 mark using third-party apps for payment will receive a 1099-K form. From there, the taxpayer will be required to report the information to the IRS by a certain deadline.
Currently, reporting is only required if a payment was made in exchange for goods and services. This means, if you send your friend Venmo for the dinner tab they picked up, reporting is not required. If you shoot your sister money via Cash App for your half of a family birthday gift, you do not have to alert the IRS.
However, if you are a business owner and you allow customers and clients to pay you through these types of apps, you will need to report qualifying transactions. For example, maybe you provide babysitting services, and you get paid through these types of apps, you will need to report this information to the IRS. Perhaps you are a landscaper or a repair person taking the majority of your payments through these apps, if so, prepare to document and report to the IRS.
This opens up a whole new door of tax compliance to a variety of business owners and individuals. Now is the time to consult a tax professional about this new law. We can help you determine exactly what is classified as taxable income. We can help you prepare and file your 1099 forms when the time comes.
Click here for more information from the IRS and answers to some of the questions you may have: General FAQs on New Payment Card Reporting Requirements | Internal Revenue Service (irs.gov)
Reach out to us today for more information and guidance. We would be happy to assist you.