A new tax rule from the Internal Revenue Service will require payment apps to report business transactions over $600.
The new rule is designed to give the IRS a look into the transactions of small businesses. Payment process apps like Cash App, Venmo, and Paypal will have to report business transactions over $600. The new rule will apply to all third-party payment processors.
Normally business owners simply report this specific type of income via a 1099-K, but now the IRS will be able to check reported transactions against records reported by the third-party payment processors.
According to Fox Business, the rule only applies to goods and services sold, not gifts or property sold at a loss.
PayPal warned users about the new rule in a press release.
"The IRS will be able to cross-reference both our report and yours," PayPal said. PayPal encouraged business users to consult with a tax professional to make sure the 1099-Ks correspond with the processor’s records.
PayPal said it could request more personal information about its users in the future to make sure users comply with the rule.
“In the coming months, we may ask you to provide tax information like your Employer Identification Number (EIN), Individual Tax ID Number (ITIN) or Social Security Number (SSN), if you haven’t provided it to us already,” PayPal said.
The rule isn’t applicable to the 2021 tax season. Instead, small businesses will have to take care to follow this rule for the 2022 tax season.