More Payments Received Through Common Payment Platforms Will be Reported to the IRS

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More Payments Received Through Common Payment Platforms Will be Reported to the IRS

Do you receive reimbursements or gifts from friends or family members or conduct business through payment platforms like Venmo or PayPal? You may receive a new form during next year’s tax filing season.

In the past, credit card processors and payment settlement entities were required to report payments in a trade or business to the IRS and payees on Form 1099-K for any taxpayer that received at least $20,000 in reportable payments. Starting in 2022, that threshold is being lowered to $600 and other entities have been included in the required reporters. That means many more taxpayers will be receiving this form, and the IRS may be reviewing tax returns to ensure this income is appropriately reported on the tax return.

Although the most common entities required to report on these forms are banks and online payment networks, the new requirements also cover other payment methods like Venmo, PayPal, and Cash App as well as gig economy facilitators such as Uber and TaskRabbit. If you use any of these payment methods for non-business purposes, you may want to look into how they plan on differentiating business payments from personal payments. For example, Venmo will only be reporting payments on the 1099-K that are tagged as being for “goods and services.” However, all business Venmo accounts will have all payments reported on the 1099-K, regardless of description. Other payment processors may have different policies. Note, Zelle (direct transfers between bank accounts) is currently exempt from these requirements.

Of course, any taxable income should be reported on your tax return even if not reported to the IRS, but some taxpayers may still be surprised to receive this form in January 2023 if they have not received one before. If you receive a form and aren’t sure whether the income should be reported, please feel free to give us a call to discuss.