Good news for anyone who uses one or more of the popular payment applications such as Venmo, PayPal, or CashApp: the new tax reporting requirement threshold that was scheduled to take effect for the 2022 tax year has been delayed!
As part of the American Rescue Plan Act of 2021, the IRS was slated to require third-party settlement organizations, such as Venmo, PayPal, and CashApp, to issue Form 1099-K (for Payment Card and Third-Party Network Transactions) to any taxpayer who had received a total of $600 or more through these payment services, regardless of total number of transactions. The goal had not been to track personal transactions, such as sharing a household bill or splitting meal costs, but to find potentially lost tax revenues from underreported income. This can especially affect small business and self-employed taxpayers who may be utilizing these services for transactions.
The previous threshold, which will now remain in effect through calendar year 2022, only requires the issuance of 1099-Ks to taxpayers who exceed both $20,000 in payments and 200 total transactions.
The IRS has stated that their goal is now for calendar year 2022 to be a transition period as the lower reporting threshold is rolled out for calendar years beginning after December 31, 2022. Their hope is that the delay will help ensure a more orderly application of the changes for both the reporting organizations as well as taxpayers. All income must still be reported, regardless of whether a 1099-K is issued or not. It may be helpful for any taxpayer who is using these third-party settlement organizations to create separate accounts for business and personal to ensure the most accurate tracking, as well as making sure that each transaction is appropriately classified when it is initiated through the organization.
This delay is in part due to significant lobbying from organizations such as the AICPA, the National Association of Tax Professionals, the National Taxpayers Union, and others. Additional guidance will be provided by the IRS in the near future, including what a taxpayer should do if they have already received a 1099-K amid the statutory changes.