Payment apps such as Venmo, PayPal and Cash App were tasked under the American Rescue Plan of 2021 with sending 1099-K tax forms to the Internal Revenue Service (IRS) and to people who earned at least $600 via the platforms.
People were supposed to start receiving the forms in January 2023 in time for the 2022 tax filing season. But a viral tweet posted on Dec. 23 claims the IRS has delayed the reporting requirement.
“Cash App, Venmo, and Paypal are no longer required to send you a 1099-K for $600 transactions,” the tweet says. “Instead, it will be $20,000.”
Did the IRS delay the $600 tax reporting rule for payment apps?
Yes, the IRS delayed the $600 tax reporting rule for payment apps.
WHAT WE FOUND
Third-party settlement organizations, including payment apps such as PayPal, Cash App and Venmo, won’t be required to send 1099-K forms to everyone who earned at least $600 in 2022 via those apps, the IRS announced on Dec. 23.
A 1099-K form is “used to report tax information to you and the IRS” about your transactions through a payment app or other online service, tax preparation service H&R Block explains. The payment app or online platform will send a copy of the 1099-K form to you for preparing your taxes and another to the IRS.
The lowered $600 reporting threshold was included in the American Rescue Plan of 2021, a measure intended to prevent people from underreporting income. The Joint Committee on Taxation estimated that this change to reporting requirements would increase tax revenue by $8.4 billion from 2021 to 2031.
Prior to the American Rescue Plan’s passage, payment platforms were only required to send 1099-K forms to anyone who earned over $20,000 from more than 200 transactions.
Since the IRS is delaying implementation of the new reporting threshold by one year, payment apps will send 1099-K forms to taxpayers who made at least $600 in 2023 rather than 2022.
Similar to prior years, PayPal and Venmo will continue to report $20,000 from over 200 transactions, PayPal told VERIFY. Cash App did not respond to a request for comment.
This new reporting requirement doesn’t mean people can avoid paying taxes. The IRS requires people to report all taxable income they receive, regardless of whether they receive a 1099-K form from a payment app or other online platform – that’s not new.
The IRS announcement comes as some taxpayer advocates, including Collins, have raised concerns over taxpayer confusion and the ability of third-party settlement organizations to comply with the new $600 reporting threshold.
Collins said some taxpayers could receive a 1099-K form under the new rule if their payments are incorrectly classified as income, even though the law isn’t aimed at tracking personal transactions such as paying friends or family for meals or household bills.
“Lowering the threshold from $20,000 to $600 substantially increases the number of Forms 1099-K that will be issued,” Collins said. “The postponement should provide taxpayers additional time to familiarize themselves with the rules, and more importantly, to properly identify personal versus business payments to prevent misidentified payments being reported on a Form 1099-K at year-end.”
In Vermont, Massachusetts, Virginia and Maryland, the 1099-K reporting threshold is $600 annually, regardless of the number of transactions. The threshold in Illinois is $1,000 in a year with at least four payment transactions processed.
Anyone who meets the reporting thresholds in these states will receive a 1099-K form.
When using payment apps, Collins recommends making sure that personal payments like gifts or reimbursements are classified as something other than goods and services. You can also create separate personal and business accounts to keep those transactions separate.
For more on what to do if you receive a 1099-K form, but the money you received isn’t income, click here.
CORRECTION: This article previously stated that the 1099-K reporting threshold of $20,000 for more than 200 transactions will remain in place through Dec. 31, 2023. The IRS confirmed this is a typo and the delay only applies to transactions for 2022. The article has been updated to reflect that information.