American Rescue Plan Creates New Tax Reporting Requirements for Payment App Users

Apps like PayPal, Venmo, or CashApp have made it much easier for small businesses to take payments for their services, but as far as the IRS is concerned, they have also made it easier for small businesses to commit fraud. Included in the American Rescue Plan, passed in 2021 and put into effect at the start of 2022, is a new law changing tax reporting requirements for third-party payment apps. Previously, if you or your business received more than 200 business transactions in a year totaling over $20,000, you were required to file a Form 1099-K with the IRS. Now, the dollar amount of business transactions is just $600, a mere 3% of the previous threshold.

To clarify, this reporting requirement only applies to business transactions, not transactions personal use. Paying your friend back for dinner won’t contribute towards the $600 threshold. Any transactional payments for services, products, or tips however will be included. Payment apps are accounting for this change by prompting users on every transaction to confirm if the money being sent is for business or personal use, a feature PayPal has had for years that is now being applied to Venmo and CashApp.

Thankfully, this is simply a new tax reporting requirement, not a new tax that app users will have to pay. Those selling items not for business purposes, such as reselling used furniture, should keep in mind that selling items at a loss is not taxable. It’s highly recommended to keep good records of these transactions, to ensure that should any problems arise with the IRS, there’s a paper trail to prove it was not a business transaction. For business owners, it’s recommended to have a separate business account for business transactions, to keep better track of personal versus business transactions.

These new requirements were created to allow the IRS to better investigate fraud conducted through these third party payment apps, but given the existing backlog of the IRS, and their struggle to keep up with the existing amount of paperwork they receive, it may result in even more issues for the agency. While the IRS may be struggling to keep up with their current paperwork, that doesn’t mean you should neglect your duty to submit the correct forms. If you or your business are running into issues with the IRS, give Weisberg, Kainen, Mark a call today at (305) 374-5544 to schedule your consultation.

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