NASHVILLE, Tenn. (WTVF) — Millions of businesses accept electronic payments for their services, but the IRS is cracking down on these types of payments, which include apps like Venmo, Paypal, Cash App, and Zelle.
Until now, the IRS usually only issued a 1099-K form for a business with at least 200 business transactions or at least $20,000 in gross payments, but that's changing on January 1.
Payment apps will now notify the IRS for goods and services transactions and generate a 1099-K form for transactions totaling $600 or more.
This new tax reporting requirement is part of the American Rescue Plan Act. The tax reporting change will only be applicable to payments for goods and services exchanged, not to family and friends.
"There's definitely going to be some nuances and growing pains with this," said Will Haeberle with Music City CPA. "People will read it and get scared like, 'what if I go out with friends or pay rent and do everything via Venmo or Zelle?' Generally, no if you're not a business and an individual."
Financial experts recommend using one app for business and one for personal, that way things will be separate and easier to control.
With this change, you can expect payment apps to start asking for more information to clarify the nature of your transactions.
"One thing they can do differently is make sure you have a personal account and business account so don't co-mingle funds so easier to track once you're doing taxes each year," said David Lister with KraftCPAs.
They will also request your vitals, meaning things like your employer identification number or social security number that they will be sharing with the IRS.
For more information, the IRS' website will lay out the timeline, as well as expectations and rules for third-party payment app users.
