Technology
Mobile payment apps like Venmo, PayPal and Cash App will begin reporting to IRS
January 10, 2022 2:30pm
Updated: January 11, 2022 7:03pm
Starting in 2022, third-party payment services like Venmo, PayPal, Cash App and Zelle will be required to report accounts to the IRS with business transactions totaling more than $600 per year.
Before, the threshold for reporting was $20,000 total or 200 separate business transactions in a single year. Anyone exceeding the new $600 threshold will now be required to fill out a Form 1099-K.
"You may notice that in the coming months we will ask you for your tax information, like a social security number or tax ID, if you haven't provided it to us already, in order to continue using your account to accept payments for the sale of goods and services transactions and to ensure there aren't any issues when these changes take effect in 2022," PayPal said.
"This helps us meet our obligations to the IRS and ensures that you will be able to continue using your account and access PayPal and Venmo features and services."
Many of these mobile apps were used for small transactions between friends and family, such as dinner or splitting utilities. But now the platforms are used for businesses in the place of checks, credit cards or cash, which makes it easier to underreport earnings.
The change to $600 was part of the American Rescue Plan, which passed in March 2021. The most affected will be those who transitioned to self-employment and freelance work due to the pandemic.
“Business owners who prefer to operate in a cash environment — let me put it that way — kinda may try to shift back in that direction, to a certain extent,” said Lisa Ellis, a payments analyst at MoffettNathanson, told Marketplace.
She has expressed doubts many will shift back to cash during a pandemic, where fears of contagion have solidified digital payments.
The “$600 rule” has also affected other sites that process their own transactions, like used musical instrument website Reverb.
It will not apply to individuals who use third-party systems for personal reasons, like paying someone back for dinner.
