As of January 2022, mobile payment apps like Venmo, PayPal and Cash App are required to report commercial transactions totaling more than $600 per year to the Internal Revenue Service.
The change to the tax code was signed into law as part of the American Rescue Plan Act, the Covid-19 response bill passed in March.
So, what does this mean for your personal account or your small business?
In previous years these mobile payment apps only had to tell the tax authorities when a individual had over 200 commercial transactions per year that exceeded $20,000 in total value, the IRS said.
Starting Jan. 1, the IRS stated, if a person accrues more than $600 annually in commercial payments on an app like Venmo, then Venmo “must file and furnish a Form 1099-K” for them — reporting on all the commercial income they collected through the app.
The tax-reporting change only applies to charges for commercial goods or services, not personal charges to friends and family, like splitting a dinner bill.
In an explanatory document on the new tax changes, the IRS said these changes also apply to people who sell items on internet auction sites like eBay and people who “have a holiday craft business” so long as they accept credit card payments through these apps.
PayPal said both “PayPal and Venmo offer a way for customers to tag their peer-to-peer (P2P) transactions as either personal/friends and family or goods and services by choosing the appropriate category for each transaction.”
“Users should select Goods and Services whenever they are sending money to another user to purchase an item, like a couch from a local ad listing or concert tickets, or paying for a service,” PayPal said.
Per Zelle, “If payments received on the Zelle Network are taxable, it is the consumer or organization’s responsibility to report them to the IRS.” Meaning that if you use their platform for your small business then you are responsible to report them to the IRS. They will not be reporting it to the IRS directly. To pull this all together these changes will only affect small and independent businesses that use mobile payments. These reporting requirements are only for payments received for a good or service, and do not apply for transactions like splitting the bill or paying back a friend or family member. Customers can choose to send a payment for a good or service by toggling the button at the bottom right of the payment note screen in the Venmo app and similar options are available on all mobile payment platforms.