Third-party payment networks, such as PayPal and Venmo, must report to the IRS any transactions for goods or services in excess of $600 starting this year.
The change was made to capture income made by gig workers and entrepreneurs with a side hustle. In the past, companies were only required to send an IRS Form 1099-K for gross payments exceeding $20,000 and more than 200 transactions within a calendar year.
This new rule won’t affect 2021 federal tax returns, but now is the time to get ready for next year.
If you’re sending or receiving money through one of these apps, you need to be proactive in making sure you aren’t mistakenly sent a 1099-K.
The House’s Build Back Better Proposal would have separately required third-party payment networks to apply backup tax withholding to such payments. However, the Build Back Better Proposal did not pass in 2021.
But the IRS is aware of this leakage or revenue from third-party payment networks, such as PayPal and Venmo and will continue enforcement efforts to ensure the taxpayers properly report income from these third-party payment networks.
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Read more at: Tax Times blog