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Payment Apps to Report Payments of $600 or More To The IRS

In March of 2021, we were introduced to the American Rescue Plan. Amongst other new regulations, it includes a new rule that requires third-party payment networks such as Venmo, Cash App, Zelle, etc., to report payments to the IRS that are over $600. It will mainly impact business owners that regularly use these third-party payment apps.

 

 

Originally, the IRS only required these payment network providers to report payments that met both of the following:

  • Gross payments that exceed $20,000
  • More than 200 transactions within the current year

Now with the new rule user’s business transactions will be reported to the IRS if they exceed $600 for the year. This ultimately affects small business owners using these services.

As of January 1, 2022, these apps must send users Form 1099-K for transactions made. However, the new tax reporting will only impact the 2022 tax return filed in 2023.

1099-K Tax Reporting Requirements

Third-party payment apps will send out these forms for income received by January 31, 2023. This is a tax form that may include both taxable and nontaxable income sources. You must report any taxable income listed on the 1099-k form on your income tax return.

A taxable source of income is included in your income. This includes things like:

  • Wages
  • Tips
  • Retirement income
  • And more.

Meanwhile, your standard income does not include nontaxable income, and you do not need to report those on your tax return. For instance:

  • Money received from a friend as reimbursement
  • Money received as a gift

Are forms of nontaxable income.

Recipients may need to provide the following for the payment-providers to properly report transactions on the form:

  • Employer Identification Number (EIN)
  • Individual Tax Identification Number (ITIN)
  • Social Security Number (SSN)

While this new law does not necessarily create a new tax, it requires employers and recipients to keep good records for any income received that may be taxable. Payment Apps

Need help keeping up with tax regulations?

Payroll Systems’ highly scalable HR and payroll solutions can help small businesses keep up to date with rapidly changing legislation and regulations.

Contact us to learn more about our combination of software and human support for your business.

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This article provides general information and shouldn’t be construed as legal or HR advice. Since employment laws may change over time and can vary by location and industry, please consult a lawyer or HR expert for advice specific to your business. You can also contact Payroll Systems to inquire about our HR support services.