Effective January 1, 2022, third-party payment networks, such as Venmo and Cash App, are required to report transactions in excess of $600 annually to the IRS on Form 1099-K.  The individuals or businesses that received payments totaling $600 or more will also receive a copy of Form 1099-K and must report the payments as income on their tax return.  

What is Form 1099-K?

Form 1099-K reports payments processed by third-party payment networks for goods and services that are taxable to the recipient.  Examples of taxable income are rent and payments for services.  Examples of non-taxable income are monies received as reimbursements, i.e., for a shared dinner or roommates paying shared rent.  If you receive Form 1099-K and the payments are not taxable income, you can contact the third-party payer to correct the error or you can include the payments on your tax return and exclude them, netting down to zero with an explanation.

Form 1099-K

Form 1099-K is not new.  The threshold for reporting has changed. Previously, the threshold was payments in excess of $20,000 and transactions in excess of 200 per year.  The new requirement of payments in excess of $600 and no limitation on the number of transactions is a dramatic change from previous years.  

Form 1099-K is different than Form 1099-Misc. Form 1099-Misc. reports payments made directly from one business to another, While Form 1099-K reports payments made through third-party platforms.

The new reporting requirements will result in many individuals and businesses facing new reporting requirements.  It is important to emphasize that only payments for goods and services are required to be reported on Form 1099-K.  Payments for personal reimbursements, etc. are not required to be reported on Form 1099-K.  Form1099-K must be issued to recipients by January 31st of the following year.

Third-party Payment Platforms

Venmo has indicated that users will be asked to provide tax identification (ITIN, SSN or EIN).  If this information is not provided and the user is near the threshold, their account will be put on hold.  In addition, failure to provide a tax ID can also result in back-up withholding on the payments.  Customers using Venmo can indicate whether the payment is for goods or services on the bottom of the payment note screen.   It is the purchaser who is required to tag the transaction as being for goods or services.

 Zelle has indicated that its network will not provide Form 1099-K to users or the IRS.  According to Zelle, it is the user’s responsibility to report their income to the IRS.  Zelle considers itself a payment platform and not a third-party payment network.

What to do for 2022

The dramatic change in the threshold amount means that many businesses that did not previously report transactions to the IRS will now have to do so.  Some common examples of transactions of goods and services through third-party networks are:

• Landlords receiving rent
• Childcare services
• Cleaning and maintenance
• Landscaping
• Salons
• Legal and Accounting
• Consultants

If you are currently using third-party networks with regard to your business activities, you should be certain to account for these payments in your books and records as taxable income because the IRS will be receiving this information.

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