On September 7, 2022 we posted Reminder PayPal, Venmo & Third-Party Payment Networks Start Reporting to the IRS Payments > $600 Starting in 2022, where we discussed that Third-party payment networks, such as PayPal and Venmo, beginning January 1, 2022, they and all third-party payment processors in the United States are required to report payments received for goods and services of more than $600 a year.
Now Zelle Says It is ‘Not Subject’ to IRS Reporting.
While users of Zelle are required to declare their earnings, Zelle itself said it does not have to declare transactions made through the payment service because it is a network that does not hold the funds, Bloomberg reported Monday (Nov. 7).
That contrasts with third-party payment processors like Venmo and PayPal that are required to issue 1099-K forms in some circumstances under an IRS rule that went into effect Jan. 1, according to the report.
For that reason, many small businesses that would otherwise receive 1099-K forms are asking to get paid via Zelle so that the forms are not issued and in hopes that they will not pay taxes on that income, the report stated.
Although individual and small businesses are required to declare income above specified levels, the IRS has found that Americans report less than half of the income that is not reported for them on a 1099-K or a W2, per the report.
Reached for comment, a Zelle spokesperson told PYMNTS via email: “If payments received on the Zelle Network are taxable, it is a taxpayer’s responsibility to report them to the IRS. If anyone has questions about their tax obligations, they should consult with a tax professional.”
The spokesperson also shared a link to an FAQ page on Zelle’s website that is dedicated to the issue.
The IRS rule that took effect in January was a big change for those who use services like PayPal, Venmo or Square to conduct business.
Previously, payment apps only had to send the IRS a Form 1099-K for accounts with at least 200 business transactions within a year if they totaled at least $20,000 in gross payments. Now they must do so if the transactions add up to at least $600.
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Read more at: Tax Times blog