Doing Business on Venmo or PayPal? Here’s the Current Tax Scoop!

Are you accepting payments via third-party systems such as PayPal or Venmo for goods and services you provide? Here’s the latest on what and when you need to report these earnings to the IRS!

What is a 1099-K?

Anyone who accepts payments from credit cards or third-party payment networks, such as PayPal or Venmo, will likely receive a 1099-K form. The 1099-K includes your Social Security number or Taxpayer Identification number, so the IRS will know that you have received money. The objective is to ensure people are reporting their business income on their tax returns. A Form 1099-K, Payment Card and Third-Party Network Transactions, is an informational return that reports the gross amount of reportable transactions for the calendar year to the IRS.

The form is required to be filed if the network you use (PayPal or Venmo, for example) makes business-related transfers to you of at least $600 during the calendar year.

Even if buyers, clients, or customers send you small amounts of money throughout the year, you will get a 1099-K if those payments total $600 or more.

Payments you receive from family and friends should not be reported on Form 1099-K.

The IRS has Delayed the Reporting Deadline Again

The American Rescue Plan Act of 2021 (the Act) significantly modified the reporting threshold associated with Form 1099-K, Payment Card and Third-Party Network Transactions, from $20,000 in aggregate payments and 200 transactions to solely a threshold of $600 in aggregate payments (with no minimum transaction requirement). The new rule was to be effective beginning with payment transactions settled after December 31, 2021.

One year later, in December 2022, the IRS delayed that effective date by a year. The IRS again delayed the effective date of the $600 threshold for Form 1099-K reporting for third-party settlement organizations. The IRS will treat 2023 as another transition year, the Service said recently in Notice 2023-74.

When the IRS does start to implement the new threshold, enacted by the American Rescue Plan Act (ARPA) of 2021, P.L. 117-2, it is planning to phase it in, starting with a $5,000 reporting threshold for tax year 2024.

Third-party settlement organizations generally include banks and other organizations that process credit card transactions on behalf of a merchant and make an interbank transfer of funds to the merchant from a customer.

The complexity in distinguishing between transactions that require a Form 1099-K and those that do not was a factor in the IRS’s decision to delay the reporting requirement change and to phase in the implementation. Find additional information at the IRS website. Fact Sheet 2023-27 contains more details about the announcement.

The information contained in this article is provided for informational purposes only and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional for your specific situation.

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Profile photo of Penny Wasem, CPA, CFP, PFS, owner of Lifetime Financial Planning Solutions in Lancaster, Ohio.

By Penny Wasem, CPA, CFP, PFS

Penny L. Wasem is the owner of Lifetime Financial Planning Solutions, LLC. A summa cum laude graduate of Ohio University, Penny earned a Bachelor of Business Administration with focus in accounting and mathematics. She serves on the board of The Fairfield Medical Center Foundation, is a member of the Investment Committee of The Fairfield County Foundation and has been active on many non-profit boards in the community. Penny lives in Lancaster with her husband Eric Hubbard and is parent to Clark and Olivia Hubbard.