Written by Joell Grisel, CPA, Manager, and Thomas Koustenis, Tax Intern

Online payment services such as Venmo, PayPal, and many others, are more common than ever, especially for the sale of goods and services. While no banks or hard currency are involved in these transactions, these digital payments for goods and services are still considered taxable.

1099 Reporting Requirements

One provision in the American Rescue Plan Act, signed into law in March of 2021, requires payment app providers like Venmo and PayPal to issue the taxpayer and the IRS a Form 1099-K for all business transactions if these transactions exceed $600 a year. This is a shift from the old rules which would only report transactions on Form 1099-K if there were more than 200 transactions in a year that totaled more than $20,000.

Payment App Specifics for 1099 Reporting

Each payment app provider may operate a little differently than another, so be on the lookout for direct communication from the provider(s) you use about the change and what, if anything, you’ll need to do. Confirming your account, providing more information about the company, or better identifying the nature of the transactions are a few of the items they may ask you to complete.

For instance, Venmo and PayPal are sending in-app notifications to customers asking them to confirm the information they use when filing their taxes. By providing this information, these users will continue to be able to use their accounts seamlessly to accept payments for goods and services. Venmo users should also see a toggle button at the bottom of their screen that lets them indicate whether the money is being sent for a purchase of goods and services.  Square’s Cash App includes updates noting that the new law is for Cash for Business accounts and is not related to personal Cash App accounts. At this point, payments through Zelle are not subject to the law and new reporting requirements.

Independent Contractors and Reporting Requirements

Independent contractors who are paid through a payment app provider should be careful to review and reconcile Forms 1099-K and 1099-NEC to ensure that they are not being taxed twice for the same income. IRS rules state that if an organization pays via a payment app provider, then the payer does not have to issue a 1099-NEC for that pay. Instead, the payment platform must issue a 1099-K.

Things you can do:

• Confirm your account with payment app providers and follow the in-app guidance to classify transactions correctly
• Keep good records of business transactions and ensure that any goods and services sold are categorized appropriately
• Try to have one business account for your organization on all pay apps, this will make your payment records more organized and make handling tax requirements much simpler. Using individual accounts (which are attached to individual social security numbers) for business transactions is discouraged.

Summary of New 1099 Reporting Requirements for Payment Apps

Payments through payment app providers like Venmo, PayPal, and Square are continuing to become more commonplace. It’s important to note that earnings for goods and services paid for through these apps are taxable and reportable to the IRS on Form 1099-K. Prior to 2022, the threshold for reporting transactions on Form 1099-K generally was 200 transactions in a year totaling more than $20,000. New rules starting January, 1, 2022 have reduced those reporting thresholds to $600, making it much more likely that taxpayers will receive a 1099-K from their payment app providers.

If you have any questions, please feel free to reach out to Blue & Co. and we’ll be happy to assist.