Overview of Third-Party Payment Reporting in Tax Filing
Filing taxes involves significant paperwork, particularly if third-party payment processors like Venmo, CashApp, or PayPal were used in the past year. Taxpayers may need to report this information to the IRS based on earnings volume and payment purpose.
Current Reporting Threshold
The requirement to report hinges on total earnings through these processors and the nature of payments.
For this tax season, if a taxpayer receives $20,000 in payments from over 200 transactions, third parties are required to issue a 1099-K.
Future Threshold Reductions
This $20,000 from over 200 transactions threshold applies this year, but the IRS intends to reduce it in coming years. The change originated with the American Rescue Plan passed in March 2021, which altered reporting obligations before delays occurred. For the 2024 tax year, the IRS plans a $5,000 threshold.
Exceptions to Taxable Reporting
Certain situations do not count as taxable income. Payments from credit card companies or Venmo transfers from friends qualify for exceptions. Examples include reimbursements for shared rent or portions of a dinner bill, which require no reporting.
Handling 1099-K Forms and Business Implications
Upon receiving a 1099-K, the IRS advises immediate contact with the issuer. This reporting primarily impacts business owners accepting payments for goods or services via third-party platforms.
Small businesses should consider using a bookkeeper. Having a bookkeeper on staff will help businesses stay organized, so during tax season, there won't be any confusion.
