The IRS reminds Americans earning over $600 on PayPal, Venmo, or Cash App transactions to report their earnings
The new rule comes as a result of the American Rescue Plan Act of 2021.
If you use third-party payment platforms, like PayPal, Venmo or Cash App, to collect payments for your side gig or business, the Internal Revenue Service (IRS) wants to remind you to report payments of at least $600.
This rule is aimed at individuals who run a side hustle, small business or do part-time work. So if you're just sending money to friends for a restaurant bill or a vacation, or collecting a one-time payment for selling something online, this won't apply to you.
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Before 2022, third-party transactions for business owners and side hustlers followed different thresholds: individuals needed to report gross payments exceeding $20,000 and report earnings if they had more than 200 such transactions, according to the IRS. But as a result of the American Rescue Plan Act, any transactions made after March 11, 2021 that exceed $600 must be reported to the IRS, regardless of how many of those transactions you've had.
These earnings were already taxable so this is not a change in tax law, but rather just a reporting change.
In order to report these earnings and transactions, you'll need to file Form 1099-K. According to the IRS, you should receive this form from each third-party payment platform you received transactions through. If you incorrectly receive the form for personal transactions, the IRS recommends you contact the payment platform for a correction or to attach an explanation to your tax return.
Tax season already feels daunting for individuals, but if you're a business owner — and a new business owner at that — it can feel even more stressful. If you anticipate filing Form 1099-K for this year, make sure you keep an up-to-date record of your transactions, balance sheet and other financial documents. Otherwise, inaccuracies when filing could trigger an IRS audit.
It also helps to work with a professional bookkeeper or accountant who can help you get organized and make sense of your tax liability so you don't feel blindsided at the last minute. If you need to hire a professional, consider using a business credit card, like the Ink Business Unlimited® Credit Card or The American Express Blue Business Cash™ Card, so you can get rewarded for the business expense. The Ink Business card lets you earn 1.5% cash back on all business-related expenses and the Blue Business Cash card gives you 2% cash back on eligible business purchases.
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See rates and fees, terms apply.
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Lastly, for more information about Form 1099-K, check out the IRS's frequently asked questions page.
For rates and fees of The American Express Blue Business Cash™ Card, click here.