A business transaction is defined as payment for a good or service, including tips. It therefore does not include personal transactions, such as to be reimbursed by a friend for dinner or to receive money to pay for a group gift.
The new requirement – included in the US bailout, which was enacted last year – will apply to the 2022 tax year and beyond. This means that the first 1099-Ks issued under the new lower threshold will not be released until early 2023.
But pay attention to your app provider’s communications about the change and what, if anything, you’ll need to do, such as providing more information to the company or better identifying the nature of your transactions.
“[Payment app providers] leverage consumer prompts and interfaces to help consumers categorize reportable versus unreportable transactions on the front-end, and then [providing] educational materials, like FAQs, to help the consumer understand the details of the new reporting requirements if they receive a 1099,” said Scott Talbott, senior vice president of government relations at the Electronic Transactions Association.
When going to send a payment to someone, Venmo users should see a toggle at the bottom of their screen that allows them to indicate whether the money being sent is for a purchase. of goods or services.
CashApp did not respond to requests for comment on how it will handle reporting for accounts where users might mix personal and potentially reportable business transactions.
“The law requiring the issuance of 1099-K forms applies to third-party payment networks that handle the settlement of funds. Payments between friends and family and eligible small businesses sent through the Zelle network are not subject to this law because Zelle facilitates messaging between financial institutions, but does not hold accounts or handle the settlement of funds,” Early Warning said in an emailed statement.
But here’s the key thing to keep in mind in all circumstances: Whether your payment app or other electronic payment platform you use issues you a 1099-K, you should always keep good records of your business transactions and pay any taxes you owe on your revenue-generating sales of a good or service, including tips.
And if you get a 1099-K from a third-party payment provider that’s incorrect—perhaps because the old furniture you sold when you moved cost less than you paid—it’s up to you to document the IRS why the money you received is not taxable income.