By Jeanne Sahadi | CNN Business
If you’re among the millions of people who use payment apps like PayPal, Venmo, Square, and other third-party electronic payment networks, you could be affected by a tax reporting change that goes into effect in January.
Payment app providers will have to start reporting to the IRS a user’s business transactions if, in aggregate, they total $600 or more for the year. A business transaction is defined as payment for a good or service.
Prior to this change, app providers only had to send the IRS a Form 1099-K if an individual account had at least 200 business transactions in a year and if those transactions combined resulted in gross payments of at least $20,000.
The expansion of the reporting rule is the result of a provision in the American Rescue Plan, which was signed into law earlier this year. The ultimate aim of the provision is to clamp down on unreported, taxable income.
“The new reporting rules do not change the basic requirement that the income you receive from providing goods and services is reportable. The new rule, however, is likely going to be an administrative hassle for the millions of small businesses in the US. Digital apps will be asking you more questions, perhaps your SSN or tax ID. You’ll also have to two sets of documents to investigate the 1099-MISC that you receive from your customers and the 1099-K.“
–Shruti Gurudanti, Rose Law Group Chair of Corporate Transactions