Payment apps have made transferring of money owed very simple and have made business to business transactions quick and easy, allowing millions of businesses to accept electronic payments for services.
However, the IRS has announced that they will be cracking down on these forms of charges, which include apps such as Zelle, Venmo, Paypal, and Cash App. This new tax reporting requirement is part of the American Rescue Plan Act.
Previously, the IRS only issued a 1099-K form for a business with at least 200 business transactions or at least $20,000 in gross payments. That rule however will change effective January 1st.
Payment apps will now be required to notify the IRS for all goods and services transactions and automatically generate a 1099-K form for transactions totaling $600 or more.
It is important to note, the new measure will only apply for goods and services payments for businesses. The reporting will not be for personal use of the app of payments to family and friends.
Experts strongly recommend to keep the accounting clean and simple, users should choose to use one app for business and another app for personal use.
Users can expect to see the payment apps instituting additional questions asking for more information to clarify the nature of the transactions.
Businesses will be required to add their employer identification number or social security number, which in turn will be shared with the IRS for tax reporting purposes.