Use an app such as Venmo to receive business payments. The IRS now requires that these apps send you a form to report the transactions, if their total is $600 for the entire year.
The IRS used to require payment apps to only send 1099-K forms — which document income from third-party networks or payment cards — when users made at least $20,000 in one year and performed 200 transactions.
Venmo and PayPal will be required to issue 1099-Ks to those who reach the $600 limit.
This new rule does not apply to payments made between family members or friends for shared bills, meals and other expenses. The new rule is aimed at side-jobbers or small business owners who receive $600+ online in one year, but may not report them.
What you need to know before the 1099-K changes.
Updated requirements for reporting 1099-K
IRS estimates that unreported payments made on apps such as Venmo or PayPal amount to nearly $166 billion. The new rule is intended to close the “tax gap,” which refers to money due to the federal government but not paid. As part of the American Rescue Plan Act 2021, this change will be phased-in beginning with tax year 2023.
Payment processors such as Cash App, Venmo, and PayPal, along with platforms including eBay and Etsy, will be required to issue a 1099K to any user who has made more than $6000 in transactions in the year 2023.
Understanding Form 1099 K
The Form 1099K will be sent to you by third-party platforms or financial institutions if they have paid out income through their platform in the past year. According to IRS regulations, any income you receive from your business (including selling things on eBay and mowing your neighbors’ lawns) should be reported on your tax return.
Which persons are required to submit a form?
You should consult your 1099-K if you make at least 600 dollars annually and are paid by Venmo or PayPal, Cash App or any other third party.
Included in this are payments you received for services, personal goods you have sold or rented and property that you have provided.
- Peer-to-peer payment platforms or digital wallets
- Online Marketplaces
- Marketplaces for craft or makers
- Auction sites
- Platforms for car sharing and ride hailing
- Real estate marketplaces
- Ticket exchanges or resale sites
- Platforms for crowdfunding
- You can find freelance marketplaces on the Internet.
As they’re not considered income, gifts from family and friends or reimbursements of personal expenses do not need to be declared.
Zelle does not report to IRS
Zelle, unlike its competitors’ services, facilitates bank-to-bank transfer. The company also says that it will not be providing customers with 1099-K form.
If you use Zelle to make business payments, then you are still required to declare any income that you may receive through the platform. You can consult a tax expert if not sure what you need to do.
Prepare to File Taxes
Due to the IRS’s new requirement, it is likely that more taxpayers will receive Form 1099K in 2023. Tracking your transactions is a proactive way to ensure that they are reflected in your tax bill.
Make payments or save for tax
In general, income taxes are paid in accordance with the amount of money you receive or earn throughout the year. This can be done through tax payment estimates or by using withholding. You will need to pay estimated taxes if you are self-employed.
Keep Good Records
Keep up-to-date records on your financial transactions and balance sheets. If you file incorrectly, an IRS audit could be triggered.
It’s best to separate your personal and business transactions if you get some of or all of the income from a peer-topeer platform. It will be harder to distinguish between business and private payments if the transactions have been mixed.
The Next Steps
As the reporting threshold for 2023 drops, more people will be affected. This is likely to result in a surge of 1099-Ks. You may wish to consult a bookkeeper or an accountant if you are a freelancer or have a side-business. They can help you determine your potential tax liabilities.
You can avoid delays and ensure that your tax return is filed accurately if you prepare now for the next filing season.