President Biden's American Rescue Plan Act contained many provisions, some of which resulted in significant changes for taxpayers. Freelancers, or gig economy workers, were particularly affected by the plan, as it finally allowed the IRS to turn its tax-collecting eye to Venmo.
The American Rescue Plan Act (ARPA) of 2021 has a provision for businesses that you may not be aware of, and it certainly seems to be making waves across the internet lately. In fact, the Internet Association even wrote a letter to Congress protesting it.
Section 9674 of ARPA amended certain sections of the Internal Revenue Code, including tightening the de minimis exception, lowering the threshold for reporting third-party settlement network payments on Form 1099-K to $600 starting in January 2022. Currently, 1099-K's are only required when users of cash apps such as Venmo receives over $20,000 in goods and services transactions and has more than 200 transactions for goods and services transactions in a calendar year.
Venmo is a cash app, or digital wallet, owned by PayPal used to send and receive money.
While the tax reporting by Third Party Settlement Organizations (TPSOs) is changing, requiring them to report transactions made for goods and services made by customers with $600 or more in annual gross sales on 1099-K forms, these changes in 1099-K reporting didn’t change tax obligations.
Form 1099-K, Payment Card and Third-Party Network Transactions, is simply an IRS information return used to report payment transactions to improve voluntary tax compliance. If you're using Venmo, or other cash apps to receive business income, you should have been reporting that income all along, and so you have nothing to worry about. The ARPA measure only applies to transactions for commercial sales of goods and services, which are already considered taxable income.
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Candace J. Dixon has been in practice as an accountant since 1996. She has a Bachelor's Degree in Accounting from Saint Leo University in Tampa, Florida, and is a Certified Advanced QuickBooks ProAdvisor. She specializes in taxation and advanced accounting, and is known for being well-versed in the Internal Revenue Code and the gig economy. Her...