Reporting Venmo, Paypal, & Cashapp Payments of $600 or more to IRS in 2022
There have been many questions regarding the recent changes to upcoming tax reporting requirements that could impact the information that peer-to-peer payment services (such as Venmo, Paypal, and Cashapp) share with the IRS about transactions made for the sale of goods and services that exceed $600 in a year. Third-party payment apps were required to report gross income for users who exceed $20,000 or who have 200 separate transactions within the calendar year. So while the law is not new, it has changed. However, one thing that has not changed is how the information is reported – on Form 1099-K. Paypal Newsroom provides answers to some questions that you may have about this change.
1. Will I have to pay taxes when sending and receiving money on PayPal and Venmo – what exactly is changing?
- 1099-K Threshold Change:
- This new Threshold Change is currently only for payments received for goods and services transactions, so this doesn’t include things like paying your family or friends back using PayPal or Venmo for dinner, gifts, shared trips, etc.
- This change was introduced in the American Rescue Plan Act of 2021, which amended some sections of the Internal Revenue Code to require Third-Party Settlement Organizations (TPSOs), like PayPal and Venmo, to report goods and services transactions made by customers with $600 or more in annual gross sales on 1099-K forms. Currently, a 1099-K is only required when a user receives more than $20,000 in goods and services transactions and more than 200 goods and services transactions in a calendar year.
2. Will the updated 1099-K Threshold Change apply if I sell personal property, like a couch or an item at a garage sale, for $600 or more if it was sold for less than its original value? Will I be issued a Form 1099-K?
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
- Sent as reimbursement
- 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.
3. When do these changes come into effect?
The 1099-K change will take effect on January 1, 2022.
This means you will need to take into account the Threshold Change with your Tax Year 2022 filings.
4. What do I need to do in 2022 when the 1099-K Threshold Change takes effect?
You may notice that in the coming months third-party payment services will ask you for your tax information, like a Social Security Number or Tax ID. You will need to do this in order to continue using your account to accept payments for the sale of goods and services transactions and to ensure there aren’t any issues when these changes take effect in 2022. This helps them meet their obligations to the IRS and ensures that you will be able to continue using your account and access PayPal, Cashapp, or Venmo features and services.
For the 2022 tax year, you should consider the amounts shown on your Form 1099-K when calculating gross receipts for your income tax return. The IRS will be able to cross-reference both their report and yours. You will receive the forms beginning next year for this year’s transactions. The form will be used to fill out your 2022 income taxes that are due in April 2023.
5. Where can I find more information?
If you would like more helpful resources as your business navigates this change, visit irs.gov. We know that these changes have the ability to impact your year financially and in turn future tax seasons. You don’t have to figure it out alone. Call us today to learn more about how you can partner with us to determine how your business can plan ahead.
Contributing Source: https://newsroom.paypal-corp.com/2021-11-04-New-US-Tax-Reporting-Requirements-Your-Questions-Answered