Taxpayers must disclose to the IRS transactions of at least $600 obtained via payment apps like Venmo, PayPal, and Cash App. This new IRS rule for online payments might come as a vicious surprise for Americans who gained money online this year when they file taxes in 2023.
Last month, the IRS issued a primer for company owners explaining the need to file Form 1099-K for any payments to third parties that exceed $600, according to Fox Business.
CNBC reports that before 2022, the IRS required people to record profits if they had more than 200 third-party transactions or to report gross payments over $20,000, depending on the nature of their company or side hustle. However, the American Recovery and Reinvestment Act mandates that anybody with more than 600 aggregate transactions after March 11, 2021, must file a report with the IRS.
In a blog post in 2021, PayPal noted that their users may notice that they will be asked for their tax information, such as a social security number or tax ID if they have not submitted it before. This is "to continue using your account to accept payments for the sale of goods and services transactions" and to guarantee there will be no complications once modifications take place in 2022.
PayPal continued in their message that the measure will help them "satisfy" their "duties to the IRS" and ensure that clients can continue using their PayPal and Venmo features and services.
What Does the New IRS Rule Says?
In March 2021, Democrats approved the American Rescue Plan without Republican support.
A single purchase of $600 or more via US online payments will now automatically initiate the process. The new IRS rule for online payments is an effort to clamp down on tax cheats who underreport their income in the United States. But others say it's just another example of government meddling that might impact small enterprises.
The new IRS rule for online payments only covers money received for goods and services transactions, so using Venmo, Cash App, or PayPal as US online payments to transfer money to a loved one or a friend is not affected. Anyone who obtains money by selling a personal asset at a loss is exempt, according to a report from 104.5 WOKV.
Payments for goods and services received throughout the calendar year are reported on Form 1099-K. However, gross income does not include some exclusions that are not subject to income tax, such as amounts from the sale of personal items at a loss, amounts paid as reimbursements, and amounts provided as gifts.
Expert Warn on the Measure's Possible Setback on US Gig Economy
Hanson Bridgett tax attorney Nancy Dollar warned that the change in US online payments will come as "a shock out of nowhere" for people who will receive it.
Dollar argues that this new IRS rule for online payments may cause some Americans to rethink their decision to join the "gig" workforce. The tax expert told Fox Business that the new IRS rule for online payments will "force people to either cut down on those activities or kind of take them more seriously and track them."
Millions of Americans who supplement their income with online endeavors might be caught in the net of the lowered reporting level. According to the Pew Research Center, almost one-quarter of US adults earn supplemental income through online activities such as shopping, renting out space in their houses, and providing services via a digital platforms like Venmo, PayPal, Cash App.
