What is the New Law?

As part of the American Rescue Plan – which was signed into law last year – a new tax requirement has been created. Starting on January 1st of this year, if your business accepts payment though apps like Venmo, PayPal, or CashApp you’ll be given a Form 1099-K for your business transactions. Since it went into effect this year it will apply to tax year 2022 and after. The old regulations had been if you processed more than 200 business transactions in a year through a payment app that totaled at least $20,000 you would be issued a 1099-K. Now, it has been lowed to transactions totaling more than $600, no matter the total number of them. These tighter restrictions are to help hold businesses accountable for all profit they bring in no matter where or how they accept payments.

The Big Confusion

When this was first announced you may have read on social media pages or heard from friends that “The IRS is going to be taxing my personal account!” That’s not what is going to happen and not the intent behind this regulation change. Seeing article headlines covering the new regulations would make it easy to assume that it might affect all payment app users. So don’t fear – it won’t change your ability to pay friends back for a dinner our or chip in for a join family gift.

If you use a bank-to-bank payment system – such as Zelle – this change in regulation won’t affect you. Since Zelle doesn’t hold specific accounts or funds directly, they are not considered a payment app and do not issue 1099-Ks for users. If you use Zelle for your business to accept payments it is your responsibility to report that income to the IRS.

Will it Apply to Your Day-to-Day?

Short answer: no, not at all. This regulation is geared for businesses and to help prevent people from evading existing taxes they owe by accepting payments through payment apps. This won’t add new taxes onto your personal transactions. It also shouldn’t change your personal return as an individual, but always check with your accountant if you have questions.

For small business owners, those with a side hustle, and others who receive commercial payments for goods or services through the apps will receive their 1099-K forms from each of the apps they use. Most apps – like Venmo – have already updated their Frequently Ask Questions (FAQ) page to include information on the regulation changes. If you use multiple platforms to accept payments, then it would be best to chat with your accountant or one of our team members to understand how best to report the income. Most apps will issue your 1099-Ks in early 2023, so you won’t need to address it again until mid-2023 when prepping for next year’s taxes. You can check with your specific app’s FAQ’s page to learn more about what you may need to do for them to have a 1099-K issued accurately.

If you’re an online seller – through Etsy for example – you could also be receiving a 1099-K for sale of goods on those sites. Like payment apps, you can learn more about the specifics for the site you’re selling on by checking out their FAQ’s page. Still have questions? Keep reading to find out how we can help!

How to Report

Each app has a different way of reporting – but generally you’ll need to confirm some of your basic tax information with them. A quick scroll through your app’s FAQ’s page should clear up most of your questions on how to report with that specific app. You can also check with your accountant for help too! It is a good idea to check on this information sooner rather than later – so it doesn’t surprise you come tax season 2023.

Need More Information?

Want to learn more on the change in regulations? Business Insider has an excellent article breaking it down and covering some of the user confusion in more detail. Not sure how these regulation changes will impact your business or confused on how to best report the income from payment apps? We have a team of knowledgeable staff that would be happy to help answer these questions and any others you may have on taxes with payment apps. You can set up an appointment on our website, give us a call at (703) 912-7862, or send us an email to find answers!