A tax law that takes effect in January will require third-party payment processors like PayPal, Venmo and Cash App to report a user’s business transactions to the Internal Revenue Service if they exceed $600 in a year.
While the law is not new, it has changed. Before, the third-party payment apps were required to report gross income for users who exceeded $20,000 or who had 200 separate transactions within the calendar year. The information is reported on Form 1099-K.
Form 1099-K is used to report to the IRS goods and services payments received by a business or individual in the calendar year.
The $600 rule applies to payments received for goods and services transactions. For instance, if you sell products on Etsy or eBay, you will get a 1099-K form if you sell more than $600 worth of products.
“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 says in a blog post.
“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,” the post continues.
You will receive the forms beginning next year for this year’s transactions. The form will be used to fill out your 2022 income taxes that are due in April 2023.
It does not apply if a person is using the service to send someone a gift or pay someone back for buying a dinner. According to some payment providers, they will be asking for more information about transactions to see which category the transactions fall into.
Also, if you sell something at a loss; for instance, you purchased a bike for $400 and sold it for $300, the amount is not subject to the new law.
The change was made when the American Rescue Plan was passed in March 2021.
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