Find Your Specialist


Contact Us

    Go Back

    Third Party Payment Threshold Of $600 Goes Into Effect

    The IRS is about to see your Venmo. Well, not exactly, but the reporting rules for network transactions have been expanded to capture almost all small business transactions. Beginning January 1, 2022, third-party payment networks such as Venmo, CashApp, Zelle and Paypal are required to send business users Form 1099-K for transactions that equal $600 or more in the aggregate. How well the networks distinguish business payments for sales of goods and services from personal and family payments remains to be seen.   

    The American Rescue Plan Act of 2021 decreased the reporting threshold for Form 1099-K from $20,000 in aggregate payments and 200 transactions to $600 in aggregate payments, with no minimum transaction requirement, effective 2022. The reporting is not required for transactions that do not involve payments for goods or services. 

    There is one pending change to these rules. The Build Back Better legislation provides a 2022 transition year reinstating the 200-transaction requirement before backup withholding is imposed on payees who fail to provide a taxpayer identification number (TIN). In general, backup withholding is required for payment transactions if the recipient fails to furnish a TIN, the TIN furnished is incorrect, or the payment recipient has underreported income to the IRS. 

    Business v. Personal Transactions

    Only payments for goods or services in a business context are reportable. An individual who has registered for a mobile payment service and uses the service to reimburse friends or relatives for expenses, or on occasion sells a used item to another person, would not be engaging in reportable transactions. 

    One issue that arises is how the payment networks will distinguish between business and personal transactions. Most networks require customers to create a business profile or business-only account as part of their terms of service for recipients who receive payments for goods or services through the network. (See Venmo’s FAQs.) Except in limited circumstances, personal accounts may not be used to conduct business. If a network detects business activity on personal accounts, the payment recipient’s account could be canceled.  

    The IRS FAQs also explain that taxpayers who sell occasionally on internet auction sites or who have a holiday craft business are subject to the reporting rules and should be receiving a Form 1099-K for any payments taken through the networks.  

    If taxpayers do not voluntarily comply by identifying business activities, they could face stiff penalties for nonreporting or underreporting income.  

    What Information is Reported?

    The name, address and TIN of each participating payee are included on the form along with the total amount of payments. The amount reported is the “gross amount” received for the calendar year—that is–the total unadjusted dollar amount of the payments to the recipient. The form also shows a month-by-month breakdown which is necessary to resolve differences between information returns and tax returns of fiscal year filers, according to the IRS. 

    It is important to understand that the amount reported is not adjusted to account for any fees, refunds, or returns. For that reason, it is important for businesses to keep meticulous records and receipts for refunds, returns, fees, etc., anything that can be subtracted from the gross amount to get to taxable income.   

    The 1099-K forms must be furnished to the payee by January 31 of the year following the transactions. 


    For small businesses and occasional sellers, the IRS is about to get much more information about the number of payments received through the popular payment networks. The amount reported generally is not the amount that will be taxed. Therefore, it is important that taxpayers keep detailed records, receipts, return and refund information, etc., to make sure they can justify the amount of income reported on their income tax returns versus the amount shown on their 1099-Ks. Finally, it is important not to comingle business and personal payments in the same account to avoid confusion and misreporting. 


    Related Articles

    • 01.25.2023

      A New Year Means New Privacy Laws

      Ever since the General Data Protection Regulation (GDPR) came into effect in May 2018, US state privacy laws have been passed in Virginia, Colorado, Connecticut, Utah and, most pressing of them all, California. The California Privacy Rights Act (CPRA) went…

      Continue Reading
    • 01.19.2023

      The New Rules Under Section 174

      Internal Revenue Code Section 174 has long been used by taxpayers to deduct certain expenses related to research and experimentation (R&E) in the current year.  The code section was originally enacted in 1954 to eliminate uncertainty in the tax accounting…

      Continue Reading
    • 12.20.2022

      IRS Customer Service May Improve in 2023

      With 4,000 new customer service representatives and plans to hire 700 new Taxpayer Assistance Center (TAC) employees, taxpayers soon may get relief from endless hold times, no in-person help and unresolved problems.

      Continue Reading
    • 12.12.2022

      Reduce Taxable Income with IRA Distributions Transfers

      IRA owners who are age 70½ or over can transfer up to $100,000 per year to charity to reduce their taxable income. These transfers, known as qualified charitable distributions or QCDs, offer end-of-the year tax savings and can count toward required minimum distributions (RMDs) that taxpayers who are age 72 must make each year. Think of it as a tax-free charitable rollover of IRA funds.

      Continue Reading
    • 12.02.2022

      UK R&D Tax Reliefs – Where Are We Now?

      In the November 2022 Autumn Statement, the Chancellor announced significant changes to the current Research and Development (R&D) tax reliefs. The key announcements were a change to the applicable rate of the Research and Development Expenditure Credit (RDEC) and a…

      Continue Reading
    • 12.01.2022

      1099s Required for 2022 Tax Year

      Taxpayers earning income from selling goods or providing services may receive a Form 1099-K, Payment Card and Third-Party Network Transactions, for the first time in early 2023, when the 2022 forms are due. The requirement to file Forms 1099 have…

      Continue Reading
    • 11.28.2022

      IRS Uncovers $3.1 Billion in COVID Fraud

      The IRS Criminal Investigation department (IRS-CI) has partnered with the Justice Department to uncover and prosecute fraudulent activities related to the federal government’s COVID relief programs. To date, the IRS has conducted 840 investigations involving fraud amounts totaling more than…

      Continue Reading
    • 10.25.2022

      IRS Inflation Reduction Act Increases Funds

      The Inflation Reduction Act of 2022, enacted in August, increased funding for the IRS by $80 billion through 2031 for enforcement activities, operations support, systems modernization and taxpayer services. The legislative language, Treasury Secretary Janet Yellen and IRS Commissioner Charles…

      Continue Reading

    Privacy Overview

    When you use or access the Site, we use cookies, device identifiers, and similar technologies such as pixels, web beacons, and local storage to collect information about how you use the Site. We process the information collected through such technologies, which may include Personal Information, to help operate certain features of the Site (e.g., to prevent online poll participants from voting more than once), to enhance your experience through personalization, and to help us better understand the features of the Site that you and other users are most interested in.

    You can enable or disable our use of cookies per category.
    Always Enabled