Payment Apps Must Report $600+ in Business Transactions to IRS

Small business owners, independent contractors and those with a side hustle who use third-party payments apps for commercial payments should be aware of a new rule that went into effect this year. That includes apps like Cash App, Venmo, PayPal and Zelle.

Earnings over $600 will now be reported to the IRS. This is a provision that was included in the  2021 American Rescue Plan and went into effect on January 1, 2022. Each third-party payment processor needs to report transactions received for goods or services totaling over $600 per year. They must file and furnish a Form 1099-K, reporting on all the commercial income they collected through the app as long as that threshold is reached.

Previously, the reporting requirement was $20,000 and 200 transactions. This also applies to those who run an eBay shop, for example, or any other online store that accepts payment cards, according to the IRS. It will give the IRS more information about the business transactions being made on these platforms, which often go unreported

But don’t worry, the IRS will not tax all your Venmo transactions, such as splitting a dinner tab with your friend. You also don’t need to worry about it for now as it doesn’t apply to your 2021 taxes, which you’ll file this tax season.

So what does this new rule mean for you? If you use apps like Venmo, Cash App and PayPal to sell goods or receive payments for services, you will have an extra form in your taxes. The rule change should just be a technicality. You are always required to report all income. 

If you’re self-employed, you should already be paying taxes on your total income, regardless if you receive a check or get paid through these apps. So this is not a change on how your income will be taxed, but just a reporting change. Starting this year you will receive a 1099-K tax form each year if you earn $600 or more annually in income for goods or services and get paid through one of these third-party payment processors.

The 1099-K form might include taxable and nontaxable transactions, if the account is used for business and personal use. So things could get a bit messy. It is a good idea to always separate your personal and business transactions. You can do this by creating separate accounts on these third-party payments apps whenever possible to makes things easier.