Many small businesses utilize mobile applications, such as Venmo, PayPal, Etsy, and Square, to transact business with consumers in a fast, convenient way. For 2022, as part of the American Rescue Plan Act, the U.S. government passed legislation which requires these companies to send a Form 1099-K to anyone who receives at least $600 in payments for goods and services through these applications. Form 1099-K is an IRS form for individuals that earn income online. This new requirement takes the burden off of the individual who would have typically self-reported in the past, and now places it on third party payment processors.
Prior to 2022, the reporting requirement for Payment Card and Third-Party Network Transactions was for totals exceeding $20,000 and 200 or more transactions. Now, the threshold number for reporting has dropped to $600 and has no minimum on the number of transactions.
This announcement and change in reporting requirements caused some confusion for many individuals who utilize the applications for various reasons. For example, was the transfer of funds to a roommate for a rent payment now going to require payment of income tax? Will I be taxed if I pick up the tab at dinner and my friends reimburse me? The answer to both is probably no. This new tax rule does not apply to personal payments between friends and family. To assist with the potential confusion and concern, some apps have developed features that allow users to toggle a button to indicate whether the transfer is for the purchase of goods and services.
It should be noted that if someone in an Independent Contractor role takes payment via one of these methods noted in this briefing, there may need to be reconciliation with the Form 1099-K and the Form 1099-MISC, typically given to Independent Contractors for income earned. It is always best to consult with an accountant or tax preparer when questions arise regarding taxes.
Our Firm has extensive experience counseling employers/businesses on compliance requirements, as well as preparing and implementing applicable policies. If you have any questions related to this Legal Briefing, please contact any member of our Firm at 585-730-4773. Please note that any embedded links to other documents may expire in the future.
This Legal Briefing is intended for general informational and educational purposes only and should not be considered legal advice or counsel. The substance of this Legal Briefing is not intended to cover all legal issues or developments regarding the matter. Please consult with an attorney to ascertain how these new developments may relate to you or your business. © 2023 Law Offices of Pullano & Farrow PLLC