SILVER SPRING, MD. – Millions of small business owners who rely on payment apps like Venmo, PayPal and Cash App could be subject to a new tax law that just took effect in January.
Starting this year, third-party payment processors will be required to report a user’s business transactions to the IRS if they exceed $600 for the year. Payment apps previously had to send users Form 1099-K if their gross income exceeded $20,000 or if they made 200 separate transactions in a calendar year.
Although the change took effect in the new year, small businesses need not consider it until the start of the 2022 tax filing season next year.
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Ramakrishnan Ganesan, an accountant, tells FOX 5 DC that the apps will keep track of applicable transactions, and they will be the ones to send the tax form to business owners.
“The app, they have all the transactions there,” she said. “All they have to do is, at the end of the year, press a button and say how much money they got.
New tax rule requires PayPal, Venmo and Cash App to report annual business payments over $600
The new rule only applies to payments received for goods and services transactions, which means using Venmo or PayPal to send a gift to a loved one, pay your roommate’s rent, or reimburse a friend for dinner will be excluded. Also excluded is anyone who receives money from the sale of a personal item at a loss; For example, if you bought a sofa for $300 and sold it for $250, the amount is not taxable.
“It doesn’t include things like paying family or friends using PayPal or Venmo for dinner, gifts, shared trips,” PayPal noted in a November statement.
FoxNews contributed to this report.