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PayPal, Venmo, CashApp and Zelle To Report Payments Of $600 Or More Starting January 1st

the staff of the Ridgewood blog

Ridgewood NJ, beginning January 1, 2022 payment platforms ,PayPal, Venmo, CashApp and Zelle will be required to issue 1099Ks to any taxpayer who receives $600 or more for transactions tagged as “Goods and Services”.  This is a change from our current state of affairs which requires 1099Ks to be generated only for $20,000 of gross revenue and 200 individual transactions of this type.

Each platform will generate their own 1099K based on this requirement, and it’s our understanding that any aggregation of these amounts would need to be done by the tax authorities themselves upon receipt in order to get the full 360-degree view of the persons e-payment activities across all platforms.

These transactions could theoretically be the basis for an audit on any relevant taxes (namely sales and personal / corporate income) if there was a significant discrepancy between the tax filings and the aggregated/summed 1099Ks (across all platforms) for a single taxpayer.

The new rule results from the American Rescue Plan signed into law in March 2021 and will mainly impact business owners using third-party payment network providers. The IRS is cracking down on payments received through apps, such as Cash App, Zelle or Paypal to ensure those using the third-party payment networks are paying their fair share of taxes.

Previously, the IRS only required third-party payment networks to report payments that met both of the following reporting requirements:

Gross payments that exceed $20,000, AND

More than 200 transactions within the current year.

Beginning Jan. 1, 2022, third-party payment networks will be required to send users Form 1099-K for transactions made by mail or electronically. This means you don’t have to worry just yet: The new tax reporting requirement will impact your 2022 tax return filed in 2023.

PayPal, Zelle or Cash App may request additional information from you to properly report your transactions on your Form 1099-K. You may be asked to provide your Employer Identification Number (EIN), Individual Tax Identification Number (ITIN) or Social Security Number (SSN) if this information is not on file.

Your Form 1099-K will include payments from credit cards and online payments. You are required to report any income listed on your Form 1099-K from your taxable transactions on your income tax return.

This could get very messy, form 1099-K is a tax form sent to users that may include both taxable and nontaxable income sources. A taxable source of income is included in your income, such as wages, rents, tips, and retirement income. Whereas a nontaxable source is excluded from your income and you will not need to report on your tax return.

Some examples of nontaxable income are:

Money received from a friend as a reimbursement

Money received from a roommate to pay their share of the rent

Money received from a loved one as a gift

If you receive money from selling a personal item at a loss, you are not required to report the amount on your tax return. For example, if you purchased a dress for $100 and sold it for $50, the amount is not taxable.

 

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