Businesses that receive payment through apps like Venmo, PayPal, and Cash App will now have to report transactions over $600. This is the essence of a new tax law that took effect this January.
Democrats introduced this measure as part of the American Rescue Plan in March 2021. Republicans did not vote for this change.
IRS To Require Users To Report Transactions
Starting this January, third-party payment processors will need to report users’ business transactions to the IRS. This applies to transactions that exceed $600 for the year.
Previously, payment apps only needed to send users Form 1099-K if gross income exceeded $20,000. Or, if users performed individual transactions in excess of 200 within a calendar year.
However, the new rule requiring users to report transactions only applies to payment for goods and services.
Using Venmo, Cash App, or PayPal to send gifts to people, pay for the share in rent, or buy dinner. In addition, users that sold a personal item at a loss also do not have to file a report.
IRS Will Now Know How Much Businesses Earned From Payment Apps
The IRS already requires businesses to report their income. However, the new rule helps the IRS to determine how much small firms earned via the payment systems.
This is regardless of whether individuals will report the transaction on their 1099-Ks.
PayPal issued a recommendation for users to note the changes. “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 our report and yours,” PayPal wrote on its Q&A page.
New Rule Doesn’t Apply For Transactions Made in 2021
Even as the changes are now in effect, the changes will not apply for 2021 transactions. This means that small businesses don’t have to consider this for now. They will need to do so once the 2022 tax-filing season begins next year.
As a result of the changes, apps like PayPal, Venmo, and Cash App might ask for additional information from users.
This includes a user’s Employer Identification Number (EIN), Individual Tax Identification Number (ITIN), or Social Security Number (SSN).
Separate From Another Democrat Proposal
This new tax rule is distinct from another Democrat proposal for additional transaction reports. The other plan involved requiring banks to report accounts with more than $600 in transactions.
Originally part of Biden’s Build Back Better program, the proposal met brickbats from opponents. After much pushback, the plan increased the threshold to $10,000.
Meanwhile, Republicans noted throughout the deliberations that the new rules are unnecessary.
The proposal to report transactions is just another way for the Biden administration to look into everyday Americans’ daily purchases.
Watch the FOX 13 Tampa Bay video reporting that the government to tax cash app transactions over $600:
What do you think of the new rule requiring users to report transactions above $600? Do you approve of the rule?
Let us know what you think about reporting transactions done via payment apps. Share your comments below!