Beginning with the 2022 tax year, annual business earnings exceeding $600 received through apps like Venmo, Zelle, Cash app or PayPal, must be reported to the IRS.
The new tax law was included in the 2021 American Rescue Plan and went into effect on January 1st, 2022.
Previously, third-party payment platforms were required to report only if a user had more than 200 commercial transactions and processed more than $20,000 in payments throughout the year.
Personal payment transactions such as gifts, reimbursements, or selling personal items at a loss are not considered taxable and this new tax law does not change this nontaxable treatment. However, it is likely that the payment apps will not be aware as to whether the transaction is business or personal. A 1099-K tax form will be issued each year to those who earn $600 or more annually in income for goods or services, which might include taxable and nontaxable transactions if the account is used for business and personal use or if the payment processor is unsure if the transactions are business or personal. The 1099-K will be reported to the IRS from third-party payment platforms. Taxpayers should keep records of online transactions and purchases to avoid paying taxes on any nontaxable income.
Contact your ClarkSilva team member to discuss how this new tax law will impact your taxes.