Payment app tax reporting rule is postponed; platforms like eBay… – Times Union


ALBANY — Operators of small businesses ranging from services like lawn care and gardening, house painting, and pet grooming to third-party online vendors and some Airbnb hosts just got a year’s reprieve on a new reporting requirement for income they receive over payment apps like Venmo, PayPal, Zelle or Google Pay.

The last-minute change from the Internal Revenue Service came amid pressure by Congress and sales platforms like Ebay, who said the new requirement posed yet another burden on small scale entrepreneurs.

Due to the delay, businesses won’t have to report income over $600 on payment apps until next year.

And the current threshold for reporting income on 1099-K forms will remain at $20, 000 for another year. That threshold also requires that a vendor receive more than 200 payments on a payment app.

The lower threshold was included in the 2021 American Rescue Plan aimed at easing the financial and economic crunch of COVID-19.

While much of the plan included grants and loans to struggling businesses, it also toughened the tax reporting requirements for online commerce.
Payment apps have grown in popularity over the last decade, due to their ease of use. Their “touchless” nature no doubt gave them a boost during COVID.

With a payment app, the payer can use a phone application to send money to the receiver, with the app usually being connected to the user’s bank or credit card account.

The change came as surprise in order to tax preparers, who just recently studied up on how to handle the new reporting threshold – which is now postponed until the coming year. “We were getting training in courses on the new rules and it was going to affect peoples’ tax returns, ” said Joel Blumenthal, an enrolled agent and tax advisor with H& R Block in Troy.

But the IRS upon December 23, 2022 postponed the rule, saying 2023 would be a transition year.

The rule has also created some confusion among payment app users who have heard about it.

To be clear, filling out a 1099-K form doesn’t mean that taxes are owed – it simply lists the income.

One widely used example is that of a person who buys a couch for $2, 000 and a year later sells it for $1, 500. Under the new threshold, that $1, 500 would have to be reported, but it would also be considered a taxable loss rather than profit.

Companies that run payment apps like PayPal and Venmo (PayPal owns Venmo) also stress that the reporting requirement is for goods and services rather than personal payments.

The reporting requirement, for instance, should not include situations in which diners reimburse a friend who put a dinner tab on his or her credit card, with everyone else chipping in to the main payer via their apps.  

Payment apps such as Venmo and PayPal also have “Friends and Family” functions to keep track of the different payments.

Some of the earliest opponents to the change were e-commerce giants including eBay, Etsy and Poshmark.

The had joined forces to create The Coalition for 1099-K Fairness to fight the new rule.  

“Millions of Americans casually selling things online and micro entrepreneurs just starting a business should not receive unnecessary, invasive, and confusing tax forms for small-time transactions, ” coalition members argue on their website.

While not halting this, they did manage to get the particular reporting requirement delayed for a year.

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