Big Brother! Venmo, PayPal to report payments of $600 or more to IRS this year.
Millions of small business owners who rely on payment apps like Venmo, PayPal and Cash App could be subject to a new tax law that just took effect in January.
Beginning this year, third-party payment processors will be required to report a user’s business transactions to the IRS if they exceed $600 for the year. The payment apps were previously required to send users Form 1099-K if their gross income exceeded $20,000 or they had 200 separate transactions within a calendar year.
Democrats made the change in March 2021, when they passed the American Rescue Plan without any Republican votes.
The new rule only applies to payments received for goods and services transactions, meaning that using Venmo or PayPal to send a loved one a gift, pay your roommate rent, or reimburse a friend for dinner will be excluded. Also excluded is anyone who receives money from selling a personal item at a loss; for example, if you purchased a couch for $300 and sold it for $250, the amount is not taxable.
To be clear, business owners are already required to report these incomes to the IRS. The new rule simply means that the IRS will figure out what business owners earned on the cash apps regardless of what that individual actually reports on their 1099-K because it broadens the scope of the threshold. (This rule is separate from another Democratic proposal that would require banks and other financial institutions to disclose accounts with $10,000 of annual deposits or outflows to the IRS).