New IRS Rule Reduces Income Reporting from $20000 to $600 for Paypal, Venmo, CashApp, Zelle, Others

IRS Reverses Self on $600 Income Reporting Requirement for Paypal, Venmo, CashApp, Etc... for Now
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A new IRS reporting requirement reduces the amount to trigger reporting of payments made through online and mobile payment apps from $20,000 to $600 in a calendar year. Previously, under the tax law, you had to reach a $20,000 (twenty-thousand dollar) threshold before Paypal and other payment services were required to issue you a 1099-K. Now if you run more than $600 through Paypal, Venmo, Cash App, Zelle, or any other payment service, that service is required to issue you the 1099-K, which of course is also provided to the Internal Revenue Service (IRS).

And rather than updating the actual rules, the IRS simply tacked on a new paragraph at the end of the section in their guidance, making it confusing and unclear if one does not read carefully. In the IRS’ General FAQs on New Payment Card Reporting Requirements, they say, if you know which section to expand:

Is there a “de minimis” exception for reporting on Forms 1099-K for a third party settlement organization?

There is a “de minimis” exception from reporting for a third-party settlement organization with respect to third-party network transactions.

There is a “de minimis” exception from reporting for a third-party settlement organization with respect to third-party network transactions. If payments to a participating payee exceed $20,000 and exceed 200 transactions within the calendar year they must file for that participating payee.

Effective for returns for calendar years beginning in 2022:
If the aggregate amount of payments to a participating payee exceeds $600 for the calendar year, then the third-party settlement organization must file and furnish a Form 1099-K with respect to that participating payee.

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(“De minimis” is legal jargon for “minimum” or “minimal”, depending on how and where it’s used.)

New IRS Rule Reduces Income Reporting from $20000 to $600 for Paypal, Venmo, CashApp, Zelle, Others

Note that this does not apply only to payment cards, even though that is where this language has been stashed (we are tempted to say “hidden”) by the IRS. This applies to any payments that you receive through a “payment settlement entity” that are (or can be) designated as commercial, whether for goods sold, services rendered, etc..

Now, it has been the case for years that, for example, if you pay a contractor more than $600 in a tax year, then you have to issue them a 1099-K. What this does is closes what some have seen as an exploitable loophole which has allowed people to, for example, sell things on eBay and not have a 1099-K issued to the IRS (they still are required to report the income, but it makes it easier to try to get away with not reporting that income). By reducing this amount down to $600, the IRS stands to be able to match the amount reported on the 1099-K with the earnings reported (or not) by that person.

So now, the general rule is that anybody who pays you more than $600 for any commercial transaction in a calendar year or any payment processor through whom you have received more than $600 in a calendar year, must issue you a 1099-K by January 31st of the following year. Or, as the IRS puts it, “Every payment settlement entity required to file a Form 1099-K must also furnish to each participating payee a written statement with the same information reported to the IRS. The statements must be furnished to the payee by January 31 of the year following the transactions.”

Note that this does not apply to payments you receive for personal reasons, such as someone splitting a check with you at the restaurant, or repaying you the $20 you loaned them. HOWEVER, those will still all be reported by Venmo or Paypal, et al, and of course it will be up to you to convince the IRS that they were personal, not commercial, payments.

Bottom line? If you don’t already have separate business and personal payment accounts, it’s time to set them up and carefully keep personal payments separate from all others.

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2 thoughts on “New IRS Rule Reduces Income Reporting from $20000 to $600 for Paypal, Venmo, CashApp, Zelle, Others

  1. “Now, it has been the case for years that, for example, if you pay a contractor more than $600 in a tax year, then you have to issue them a 1099-K.” So, I have to issue a 1099-K to the contractor I hire to paint my bathroom??? When did this happen, and how come no one knows about it? Or did I misread something?

    1. Generally speaking the “contractor” referred to in this article refers to someone who is not an employee but rather a contracted worker doing work for a business (not a “contractor” in the sense of a contractor who does work on your home). The test however, as we understand it, is are you paying an established, legal business entity or are you paying an individual directly. If the latter, then at least in theory you are/may be supposed to issue them a 1099. At the end of the day, it’s all about the IRS wanting every penny that has been paid to someone accounted for (when you pay a business then that money is accounted for when the business files their taxes). That said, we are not tax professionals (at all) so you really need to ask your tax preparer that question.

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