IRS delays $600 1099-K reporting rule for payment apps

Payment apps similar to Venmo, PayPal and Cash App have been tasked beneath the American Rescue Plan of 2021 with sending 1099-K tax kinds to the Internal Revenue Service (IRS) and to individuals who earned a minimum of $600 by way of the platforms.

People have been supposed to start out receiving the kinds in January 2023 in time for the 2022 tax submitting season. But a viral tweet posted on Dec. 23 claims the IRS has delayed the reporting requirement.

“Cash App, Venmo, and Paypal are no longer required to send you a 1099-K for $600 transactions,” the tweet says. “Instead, it will be $20,000.”

Recent online searches additionally present some individuals are questioning whether or not the tax reporting rule has been delayed. 

Did the IRS delay the $600 tax reporting rule for payment apps?

Yes, the IRS delayed the $600 tax reporting rule for payment apps. 

Third-party settlement organizations, together with payment apps similar to PayPal, Cash App and Venmo, gained’t be required to ship 1099-K kinds to everybody who earned a minimum of $600 in 2022 by way of these apps, the IRS announced on Dec. 23.

A 1099-K kind is “used to report tax information to you and the IRS” about your transactions by way of a payment app or different on-line service, tax preparation service H&R Block explains. The payment app or on-line platform will ship a duplicate of the 1099-K kind to you for getting ready your taxes and one other to the IRS. 

The lowered $600 reporting threshold was included within the American Rescue Plan of 2021, a measure meant to stop individuals from underreporting revenue. The Joint Committee on Taxation estimated that this transformation to reporting necessities would enhance tax income by $8.4 billion from 2021 to 2031.  

Prior to the American Rescue Plan’s passage, payment platforms have been solely required to ship 1099-K kinds to anybody who earned over $20,000 from greater than 200 transactions.

Since the IRS is delaying implementation of the $600 reporting threshold, the earlier threshold will stay in place by way of Dec. 31, 2023, National Taxpayer Advocate Erin Collins wrote in a blog post.

Similar to prior years, PayPal and Venmo will proceed to report $20,000 from over 200 transactions, PayPal informed VERIFY. Cash App didn’t reply to a request for remark.

This new reporting requirement doesn’t imply individuals can keep away from paying taxes. The IRS requires individuals to report all taxable revenue they obtain, no matter whether or not they obtain a 1099-K kind from a payment app or different on-line platform – that’s not new.  

The IRS announcement comes as some taxpayer advocates, together with Collins, have raised issues over taxpayer confusion and the power of third-party settlement organizations to adjust to the brand new $600 reporting threshold. 

Collins mentioned some taxpayers may obtain a 1099-K kind beneath the brand new rule if their funds are incorrectly categorized as revenue, regardless that the legislation isn’t geared toward monitoring private transactions similar to paying buddies or household for meals or family payments. 

More from VERIFY: No, not all payment app transactions of $600 must be reported to the IRS

“Lowering the threshold from $20,000 to $600 substantially increases the number of Forms 1099-K that will be issued,” Collins mentioned. “The postponement should provide taxpayers additional time to familiarize themselves with the rules, and more importantly, to properly identify personal versus business payments to prevent misidentified payments being reported on a Form 1099-K at year-end.”

The $20,000 1099-K reporting threshold is a federal rule imposed by the IRS. Some states have their very own decrease reporting thresholds, as PayPal and Meta be aware on their web sites. 

In Vermont, Massachusetts, Virginia and Maryland, the 1099-K reporting threshold is $600 yearly, whatever the variety of transactions. The threshold in Illinois is $1,000 in a yr with a minimum of 4 payment transactions processed. 

Anyone who meets the reporting thresholds in these states will obtain a 1099-K kind.

When utilizing payment apps, Collins recommends ensuring that non-public funds like presents or reimbursements are categorized as one thing aside from items and providers. You may also create separate private and enterprise accounts to maintain these transactions separate. 

For extra on what to do if you happen to obtain a 1099-K kind, however the cash you acquired isn’t revenue, click on right here.