Millions of small business owners who rely on payment apps like Venmo, PayPal and Cashapp could be subject to a new tax law that just took effect in January.
Beginning this year, third-party payment processors will be required to report a user's business transactions to theif they exceed $600 for the year. The payment apps were previously required to send users Form 1099-K if their gross income exceeded $20,000 or they had 200 separate transactions within a calendar year.
Democrats made the change in March 2021, when they passed the American Rescue Plan without any Republican votes. The new rule only applies to payments received for goods and services transactions, meaning that using Venmo or PayPal to send a loved one a gift, pay your roommate rent, or reimburse a friend for dinner will be excluded.
Form 1099-K is used to report goods and services payments received by a business or individual in the calendar year, but there are certain exclusions from gross income and are therefore not subject to income tax. This includes: Amount from selling personal items at a loss, amounts sent as reimbursement and amounts sent as a gift.