The IRS issued a reminder this week for taxpayers to be ready to report transactions of at least $600 that are welcomed through payment apps like Venmo, PayPal, and Cash App.
In an explainer posted online, the IRS warned small business owners about the $600 threshold for receiving Form 1099-K for third-party payments exceeding $600.
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.
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.
The IRS announced Americans must report "payment transactions for goods and services sold that meets or exceeds $600 in a calendar year" on apps like Venmo or Paypal or face being audited.
DID YOU KNOW: Last year over 1/2 of IRS audits were on taxpayers who made $75,000 or less. pic.twitter.com/IdTxRQgHES
— Heritage Foundation (@Heritage) November 27, 2022
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.
“This doesn’t include paying your family or friends back using PayPal or Venmo for dinner, gifts, or shared trips,” PayPal previously said.
“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,” PayPal said in a Q&A on its website. “The IRS will be able to cross-reference our report and yours.”
The cash apps will now be required to send users who meet the newest requirements, Form 1099-K, for transactions made electronically or by mail.
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