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Starting this year, annual business earnings exceeding $600 paid through apps like Venmo, PayPal, Zelle, or Cash App must be reported to the IRS due to a provision in the 2021 American Rescue Plan.
The rule — which went into effect on Jan. 1 — will not impact 2021 tax returns but will apply to earnings made throughout 2022 and filed next year.
Previously, third-party payment platforms were only required to report if a user had more than 200 commercial transactions and brought in upwards of $20,000 in payments throughout the year.
Personal transactions — such as gifts, favors, reimbursements, or selling personal items at a loss — are not considered taxable and are therefore not impacted by this rule.
A 1099-K tax form will be issued each year to those who earn $600 or more annually in income for goods or services, which might include taxable and nontaxable transactions if the account is for business and personal use. The IRS will also receive a copy of the tax form from third-party payment platforms.
Just like all business information, taxpayers should keep a thorough record of online transactions and purchases to avoid paying taxes on any nontaxable income.
If you have any questions about the information above, please contact your E. Cohen advisor.
