Have a small business or a side hustle and get paid through Paypal, Cash App, Zelle, or Venmo? Start keeping track of those payments you receive.
As part of the 2021 American Rescue Plan Act (ARPA), the IRS is requiring these electronic payment apps to report transactions totaling over $600 per year.
The ARPA change took effect on January 1, 2022, and third-party networks are gearing up for the new reporting responsibilities.
Before, the threshold was much higher, at $20,000 and you had to make over 200 transactions to qualify for reporting.
The IRS said, if a person accrues more than $600 annually in commercial payments on a payment app like Venmo, then Venmo “must file and furnish a Form 1099-K” for them, reporting on all the commercial income they collected for the year through the app.
Form 1099-K is an IRS informational tax form that is used to report goods and services payments received by a business or individual in the calendar year. While banks and payment service providers, like PayPal and Venmo are required by the IRS to send customers a Form-1099K if they meet the $600 threshold amount, there are certain amounts that may be included on the form that are generally excluded from gross income and therefore are not subject to income tax. This includes:
- Amounts from selling personal items at a loss
- Amounts sent as reimbursement
- Amounts sent as a gift
So, for example, if you purchased a couch for $1200 and sold it for $800, this amount would not be subject to income tax.
Both PayPal and Venmo offer a way for customers to tag their peer-to-peer (P2P) transactions as either personal/friends and family or goods and services by choosing the appropriate category for each transaction.
Users should select Goods and Services whenever they are sending money to another user to purchase an item, like a couch from a local ad listing or concert tickets, or paying for a service.
These transactions are also eligible for coverage under PayPal and Venmo’s Purchase Protection Program. Goods and services payments are designed to provide both buyers and sellers peace of mind knowing that they may be covered if the transaction doesn’t go as expected.
Reporting and declaring any income, either personally or through a business, has always been a requirement when filing your taxes with the IRS.
In the coming months, these payment apps may ask you to provide tax information like your Employer Identification Number (EIN), Individual Tax ID Number (ITIN) or Social Security Number (SSN), if you haven’t provided it already.
Android Users, Click Here To Download The Free Press App And Never Miss A Story. It’s Free And Coming To Apple Users Soon