Venmo, PayPal and Cash App Must Report Payment of $600+ to IRS
If you have your own business or just often get paid through digital apps like PayPal, Zelle, Cash App or Venmo, you should be aware of a new rule that went into effect this year.
Earnings over $600 will now be reported to the IRS. This is a provision that made its way into the final draft of the 2021 American Rescue Plan and went into effect on Jan. 1. 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, these mobile payment apps only had to tell the tax authorities when a person had over 200 commercial transactions per year that exceeded $20,000 in total value.
The tax-reporting change that went into effect this year only applies to charges for commercial goods or services. It does not include personal charges to friends and family, like splitting a dinner bill. It also doesn’t apply to your 2021 taxes, which you’ll file this tax season.
So what does this mean for you exactly? 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 only be a technicality. You are already 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 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. This form might include taxable and nontaxable transactions, if the account is used for business and personal use.
So going forward it could be a good idea to create separate personal and business accounts on these apps to make your accountant’s job easier.