As of the start of 2022, a new federal law being put in place will directly impact virtually every single peer-to-peer payment application as well as their tax policies. This includes services used every day such as PayPal, Zelle, Cash App, and Venmo.
New Tax Reporting
Instead of it being a new form of tax, it is in fact an alteration in the way tax is legally required to be reported. Congress is making aggressive moves towards businesses and dealings that do not report their earnings to the government. Certain individuals believe they are operating under an assumption that much of the nation’s income gets purposely hidden.
“They figure there are trillions of dollars being missed through loopholes, misreporting, through a lack of enforcement” – J.P. Krahel, Loyala University Associate Accounting Professor
Prior to this, the Internal Revenue Service (IRS) mandated the reporting of payments to the aforementioned service providers in the case that the account holder performed more than 200 transactions in a single year with payments exceeding a figure of $20,000. Now, irrespective of the total number of transactions, the account holder’s payments must be reported if it even exceeds $600.
This wave of change, made in effect on New Years Day, was initially designed in the 2021 American Rescue Plan Act and amended several regions of the Internal Revenue Code. All networks offering third-party payment services are required by federal law to issue their users 1099-K forms for any transactions in which a customer grosses over $600 in sales.
Likely Will Not Impact Most
Krahel does not believe the revision of the law is about collecting taxes, but rather to simply ensure accurate reporting. While the law applies specifically to gross income, there are several exclusions including sales of personal items whose earnings were at a loss, reimbursement, and gifts. If you are not a business owner and simply paying friends or family for something, it should not affect you. Despite the fact that these transactions are now legally required to be seen in the eyes of the law, it does not affect the tax situation.
Venmo and PayPal allow customers to note whether or not their transactions were made for the purpose of business or personal discretion. Business-tagged transactions are eligible for purchase protection through the official coverage program.
These revisions apply to the tax year of 2022, so in the event you fall under any of these new requirements, the government is mandating said information when filing tax returns for 2023.