IRS delays tax reporting rule on Venmo and PayPal payments over $600 | Fox Business

The IRS announced Tuesday that it was delaying a controversial investigation tax declaration obligation targeting Americans who have earned more than $600 online through third-party payment apps like Venmo or PayPal.

The rule change – approved by Democrats in March 2021 with the passage of the American Rescue Plan – would have required payment platforms including Venmo, PayPal, Etsy and Airbnb to send Form 1099-K to the IRS and to users if their transactions totaled more. more than $600 during the year.

Instead, the IRS will treat 2023 as “an additional transition year,” meaning payment apps won’t be required to send users Form 1099-K unless their gross income exceeds 20 000 or have made 200 separate transactions in a calendar year. Starting in 2024, this basic reporting threshold will increase from $600 to $5,000.

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This is the second time in a row that the IRS has delayed the filing threshold.

“This phased approach is the right thing to do for tax administration purposes, and it avoids unnecessary confusion,” IRS Commissioner Danny Werfel said in a statement. “It is clear that an additional deferral for the 2023 tax year will avoid problems for taxpayers, tax professionals and others in this area.”

The rule only applies to payment received for goods and services transactions, which means using Venmo or PayPal to send a gift to a loved one, pay your roommate’s rent, or reimburse a friend for dinner will be excluded. Also excluded is anyone who receives money by selling a personal item at a loss; for example, if you bought a sofa for $300 and sold it for $250, the amount is not taxable.

“This does not include things like reimbursing your family or friends using PayPal or Venmo for dinner, gifts, shared trips,” PayPal already said.

The change was intended to crack down on Americans who evade taxes by not reporting their entire gross income. However, critics say this amounts to government overreach at worst and could ultimately hurt small businesses.

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Business owners are already required to report this income to the IRS. The new rule simply means that the IRS will determine what business owners earned on cash apps, regardless of what that person actually reports on their 1099-K, because it broadens the scope of the threshold.

Form 1099-K is used to report payments for goods and services received by a business or individual during the calendar year, but there are certain exclusions from gross income that are not subject to income tax , including amounts from the sale of personal items at a loss, amounts sent as reimbursements and amounts sent as gifts.

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Once implemented, the lower reporting threshold threatens to wipe out the millions of Americans who make money online. About one in four Americans earn extra income by selling something online, renting out their home or using a digital platform for work, according to the report. Pew Research Center.

“We spent many months gathering feedback from third-party groups and others, and it became increasingly clear that we needed more time to effectively implement the new reporting requirements,” Werfel said.