1099-K Form Reporting Threshold Delay Announced: What You Need to Know About Venmo & PayPal Payments

On December 23, the IRS announced a delay in reporting thresholds for third-party settlement organizations set to take effect for the upcoming tax filing season. As a result of this delay, well known third-party settlement organizations (TPSOs) will not be required to report tax year 2022 transactions on a Form 1099-K to the IRS or the payee for the lower, $600 threshold amount enacted as part of the American Rescue Plan of 2021. TPSOs include Venmo, PayPal and CashApp. 

Per the IRS, this means that for tax year 2022 the existing 1099-K reporting threshold of $20,000 in payments from over 200 transactions will remain in effect.

The IRS released guidance today outlining that calendar year 2022 will be a transition period for implementation of the lowered threshold reporting for third-party settlement organizations (TPSOs) that would have generated Form 1099-Ks for taxpayers.

The American Rescue Plan of 2021 changed third party payment processors reporting requirements to payments processed exceeding $600, which is down considerably from the original more than 200 transactions per year and exceeding an aggregate amount of $20,000 reporting requirement. This meant you would receive a Form 1099-K for payments processed for goods and services that exceed $600. The law is not intended to track personal transactions such as sharing the cost of a car ride or meal, birthday or holiday gifts, or paying a family member or another for a household bill.

Under the law, beginning January 1, 2023, a TPSO is required to report third-party network transactions paid in 2022 with any participating payee that exceed a minimum threshold of $600 in aggregate payments, regardless of the number of transactions. TPSOs report these transactions by providing individual payee’s an IRS Form 1099-K, Payment Card and Third-Party Network Transactions.

The transition period announced today delays the reporting of transactions in excess of $600 to transactions that occur after calendar year 2022 and the IRS will issue Form 1099-K to taxpayers who have $20,000 in payments from over 200 transactions processed in tax year 2022(the taxes you file in 2023). The transition period is intended to facilitate an orderly transition for TPSO tax compliance, as well as individual payee compliance with income tax reporting. A participating payee, in the case of a third-party network transaction, is any person who accepts payment from a third-party settlement organization for a business transaction.

Additional details on the delay will be available in the near future along with additional information to help taxpayers and the industry. For taxpayers who may have already received a 1099-K as a result of the statutory changes, the IRS is working rapidly to provide instructions and clarity so that taxpayers understand what to do.  Check back with the TurboTax blog for more information. There are a lot of rumors and misinformation going around about payment apps such as Venmo, Cashapp or Zelle, specifically when it comes to the IRS and what you will have to pay taxes on.  

Let’s debunk some myths around transactions on payment apps and what will be reported to the IRS. 

Myth: If my friend sends me money over Venmo, Cashapp, Zelle or another payment app, will I have to pay taxes on it? 

No, you’ll only have to pay taxes on income you’ve made off of goods and services. If you use the payment app to collect payments for goods and services you sell, that income may be subject to taxes. 

Myth: If my friend pays me back for dinner on a payment app will I pay taxes on it? What if I got a monetary gift? 

No, splitting the dinner bill with a friend using a payment app will not result in you having to pay taxes on that money. If you received money as a gift through a payment app you will not be subject to 1099-K reporting. 

Myth: Payment apps will report the income I receive as a self-employed entrepreneur.

So this myth isn’t actually a myth at all! Payment app providers will be required to report and issue Form 1099-K on payments processed for any goods or services you’ve sold in the year if you had 200 transactions and $20,000 processed. 

Myth: If I was paid using a third-party platform and I didn’t receive a Form 1099-K then I don’t have to report it? 

This is not true, you should still report your self-employment income earned from your online seller business as self-employed were always required to do. If you earn a net income of $400 or more of self-employment income you are required to file a schedule SE reporting your self-employment taxes, which gets filed with your Schedule C and your personal taxes.

Don’t forget to claim your expenses related to your business, like supplies, website cost, and start-up cost to lower your taxable income. TurboTax Self-Employed searches for deductions specific to your industry and you can track your business income, expenses, and mileage year-round with QuickBooks Self-Employed and then transfer the information to your TurboTax Self-Employed tax return.

Myth: Payment app providers like Venmo, Cashapp, or Zelle etc are going to make the American Rescue Plan  reporting change immediately. 

Wrong! The change under the American Rescue Plan was to take effect beginning with tax year 2022 taxes but on December 23, 2022 the IRS  announced a delay in reporting thresholds for third-party settlement organizations like Venmo and PayPal set to take effect for the upcoming tax filing season. As a result of this delay, third-party settlement organizations will not be required to report tax year 2022 transactions on a Form 1099-K to the IRS or the payee for the lower, $600 threshold amount enacted as part of the American Rescue Plan of 2021. 

As part of this, the IRS released guidance today outlining that calendar year 2022 will be a transition period for implementation of the lowered threshold reporting for third-party settlement organizations (TPSOs) including Venmo, PayPal and CashApp that would have generated Form 1099-Ks for taxpayers.

If you were paid through third party payment apps like Venmo, Cashapp, or Zell etc, your income will be reported on Form 1099-K if you have 200 transactions and $20,000 processed through the third parties in 2022.  

Myth: I sold one item on Ebay and made over $600.  I will not receive a 1099-K and do not have to report the income on my taxes.

You should not receive a Form 1099-K due to the reporting delay announced by the IRS today, but if you sell personal goods at a profit you should claim the profit on your taxes.

Comment with other tax myths you’d like to see busted! 

Don’t worry about 1099-K tax rules. If you receive Form 1099-K you can get a jumpstart on your taxes with TurboTax by snapping a photo of your Form 1099-K, verifying your data, and your information will be pulled into the correct form. Whether you occasionally sell online or you have a self-employed business you will get specific guidance to help you understand how 1099-K income impacts your taxes and accurately report your 1099-K income. You can also fully hand over your taxes to a TurboTax Live Full Service Self-Employed tax expert who specializes in self-employed and incorporated small business taxes who can prepare your taxes from start to finish in one meeting.