Controversial PayPal/Venmo Tax Rule Put on Pause
The Internal Revenue Service has kicked the can down the road on a controversial tax rule targeting payment apps that was set to go into effect this year.
Now, Americans who were worried about even a small dollar amount from the likes of Venmo, PayPal and Etsy turning into a 1099-K form will have a reprieve until at least 2024.
Payment App Tax Rule
Back in February 2022, we discussed a new tax law brought about by the $1.9 trillion American Rescue Plan:
“It … included a new law that drastically reduces the dollar threshold for reporting payments made via third-party payment network providers. The form applies to transactions made during the 2022 tax year, which means small businesses will begin including this form in their returns filed in 2023.”
Previously, payment apps only had to distribute Form 1099-K, Payment Card and Third Party Network Transactions, to businesses whose gross payments a.) exceeded $20,000 and b.) recorded more than 200 transactions within the year.
Under the new law, apps such as Venmo and Cash App (though Zelle was a notable exception) would have sent out this form to any business that receives $600 or more in payments through their networks, as well as to the IRS. The law also would have eliminated any minimum on the number of payments.
These changes are still in the cards, but they’ll take hold a year later than expected.
Relief Over Law’s Delay
Near the end of December, acting IRS Commissioner Doug O’Donnell released a statement pushing the new law’s start date back a year.
“To help smooth the transition and ensure clarity for taxpayers, tax professionals and industry, the IRS will delay implementation of the 1099-K changes,” O’Donnell said. Now, the forms won’t be sent until January 2024.
Despite what rumors abounded — that taxpayers would have to foot a new bill just for, say, splitting a few dinner checks or sending a financial gift — the new law never actually changed taxpayers’ burden. Instead, the law was simply meant to ensure fewer businesses evaded that burden.
“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,” the IRS has said.
Still, tax professionals, third-party payment providers and taxpayers alike are largely grateful for the delay. For the latter group, it’s one more year without the possibility of an additional tax complication. For the former two, it’s another year to try to combat the threshold. Some organizations are trying to raise it somewhat higher, if not back to its original level.
Complicated Taxes? Talk to Us.
As you can see, even one little tax change can cause a world of chaos. So imagine what could happen to your small business if it filed without intense detail paid to every nuance of the tax code.
With McManamon & Co., you don’t need to worry about that.
We provide creative, innovative and proactive tax advice that keeps your company on Uncle Sam’s good side. Our comprehensive tax service includes federal, state and local tax obligations, as well as payroll taxes for both the business and business owners.
Make a resolution to have a stress-free tax season this year. Call us at 440.892.8900 or contact us online.
Tags: McManamon, small business, tax news, taxes | Posted in McManamon & Co., small business taxes, taxes