IRS Rule on PayPal and Venmo Transactions

The American Rescue Plan has added reporting requirements that will begin in January. Those who receive $600 or more from payment apps (e.g., PayPal, Venmo) will receive a Form 1099-K. Third-party payment processors will have to report revenue received by anyone who receives more than $600 for the year to the IRS via Form 1099-K. The new requirement is part of the American Rescue Plan that was enacted last year. Prior rules required reporting revenue exceeding $20,000 as opposed to the current $600 limit. The new rule will trigger an additional 20,000,000 Form 1099-Ks.

The new rule is intended to capture small businesses and those selling items on the side. Payment Processors may request your information, such as social security numbers, so that they can property report transactions to the IRS. It will be important for taxpayers to check their PayPal account and other processor accounts to ensure their information is correct.

If you receive a Form 1099-K, you should check to make sure it is accurate. If the Form 1099-K does not belong to you, then contact the Processing Entity (top left-hand corner of form) and request they make corrections. If you own a business and wrongly receive a Form 1099-K in your individual name, again contact the Processing Entity to correct the information. If during the year, you changed the type of entity for your business, then when you make the change, immediately contact the Processing Entity. The IRS is usually proficient at cross-referencing tax returns to Form 1099s. Taxpayers will want to report all 1099s on their returns, so as to avoid notices and audits.

Bowman Law Firm, LLC Tax Attorney, Huntsville, Alabama