Peer-to-Peer Payment Apps & Taxes Starting 2022
I've seen a lot of posts on social media about the $600 limit before receiving a 1099 from third party payment proccessors (PayPal, Venmo, Cashapp, Zelle, etc). A lot of the information I've seen going around is completely wrong and sending a ton of people into panic.
First, let me be clear that I am not a CPA or in any way giving tax advice. I'm just explaining what the change is from the American Rescue Plan Act of 2021 being approved by the Government.
So... this "tax law" is not new... it's just a change in the tax reporting laws. Pre-2022, third party payment apps were only required to report payment if the account owner received more than $20,000 and had more than 200 transaction in that calendar year. With the change, those third party payment apps will be required to report earnings for any accounts receiving more than $600 in a calendar year regarldess of the number of transactions processed.
This does not impact "friends & family" transactions. This only impacts "goods & services". However, if an audit is done on your account and all of the transactions are "friends & family" but appear to actually be "goods & services", be prepared to explain every single transaction. If you are not able to show that the transaction was actually a "friends & family" transaction, the payment processor can classify the transaction as "goods & services". You will then owe fees on those transactions to the payment processor, and those amounts will be tallied into the 1099 that you receive from the payment processor.
If you are a legitimate business, regarldess of if the payment processor was sending you a 1099, you should have been reporting all of your income anyway. So this shouldn't be a huge change for anyone.
Change can sound scary, but once you dive into what the change actually consists of, if often isn't nearly as scary as you initially thought it would be.
Again, I am not a tax professional, but if you have any questions I am always happy to help you research or put you in contact with someone who may be able to assist. Just shoot us an email to email@example.com.