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IRS CHANGES MIND ABOUT $600 REPORTING THRESHOLD FROM VENMO, PAYPAL, & OTHER THIRD PARTY NETWORKS.

Here in our Chicago south loop tax preparation office, and our Homewood Illinois tax preparation office, we have heard from many people that were afraid of the IRS’s pending requirement of having platforms such as Venmo, Cashapp, PayPal, etc. start reporting transactions over $600 that the user received. In addition to platforms reporting, many people were afraid that their Zelle transactions would also be reported to the IRS; however, Zelle transactions are considered bank to bank transactions, so Zelle did not have a requirement to report. After much confusion, and protest, the IRS announced on December 23, 2022 that they will “delay for implementation of $600 reporting threshold for third-party payment platforms’ Forms 1099-K.”

To give you a little history, prior to the American Rescue Plan of 2021, third party network providers were required to issue a 1099-K once a user reached $20,000, or 200 transactions. The reporting only applied to goods and services transactions, not for things like paying your family & friends for dinner, sending gifts, etc. Once the American Rescue plan was passed, the threshold amounts were lowered to $600 as a way to catch tax cheats, or as the IRS likes to put it to “encourage voluntary tax compliance.” Now that you understand how the reporting threshold came to be, let’s talk about the change that the IRS announced on December 23, 2022.

Per IRS issue 2002-226 “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. “The IRS and Treasury heard a number of concerns regarding the timeline of implementation of these changes under the American Rescue Plan,” said Acting IRS Commissioner Doug O’Donnell. “To help smooth the transition and ensure clarity for taxpayers, tax professionals and industry, the IRS will delay implementation of the 1099-K changes. The additional time will help reduce confusion during the upcoming 2023 tax filing season and provide more time for taxpayers to prepare and understand the new reporting requirements.”1

“The IRS and Treasury heard a number of concerns regarding the timeline of implementation of these changes under the American Rescue Plan,” said Acting IRS Commissioner Doug O’Donnell. “To help smooth the transition and ensure clarity for taxpayers, tax professionals and industry, the IRS will delay implementation of the 1099-K changes. The additional time will help reduce confusion during the upcoming 2023 tax filing season and provide more time for taxpayers to prepare and understand the new reporting requirements.”2

IRS issue 2002-226 also states “the change under the law is hugely important because tax compliance is higher when amounts are subject to information reporting, like the Form 1099-K. However, the IRS noted it must be managed carefully to help ensure that 1099-Ks are only issued to taxpayers who should receive them. In addition, it’s important that taxpayers understand what to do as a result of this reporting, and tax preparers and software providers have the information they need to assist taxpayers. 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.”3

Although the IRS is not requiring the reporting at the $600 threshold, you are still REQUIRED TO REPORT ALL INCOME RECEIVED from your side gig, hustle, small business, sole proprietorship etc. In our article from July 2022, we discuss the ways the IRS can find out if you’re hiding income from them.

Do you owe the IRS, or your state back taxes? Do you have unfiled tax returns? Is the IRS threatening to garnish your paycheck, or levy your bank account? Are you ready to get back on track with the IRS? Howard Tax Prep LLC will help you get back on track with the IRS, get into a settlement, or setup a payment with the IRS. Reach out to us now at https://howardtaxprep.com/documents-needed-to-file.

Author information: Trudy M. Howard is a managing member of Howard Tax Prep LLC, a south loop of Chicago tax preparation and accounting office.

References

  1. https://www.irs.gov/newsroom/irs-announces-delay-for-implementation-of-600-reporting-threshold-for-third-party-payment-platforms-forms-1099-k
  2. https://www.irs.gov/newsroom/irs-announces-delay-for-implementation-of-600-reporting-threshold-for-third-party-payment-platforms-forms-1099-k
  3. https://www.irs.gov/newsroom/irs-announces-delay-for-implementation-of-600-reporting-threshold-for-third-party-payment-platforms-forms-1099-k

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