That shortcoming is Zelle, a bank-to-bank payment service that doesn`t hold funds. Because of its creation, Zelle says its payments are not subject to a new IRS tax rule that went into effect on Jan. 1, 2022, Bloomberg reported. Previously, a 1099-K was only sent to those who earned more than $20,000 and had more than 200 payment transactions. The new rule, which affects fiscal year 2022 and beyond, reduced that amount to $600. Individual states have their own rules for state income taxes (in Maryland, for example, the amount is also $600 in gross payment volume). Now, you can still get custom 1099-NEC forms if you were paid by direct deposit, check, or cash, but your 1099-K includes payments from all customers that you paid through that particular payment app. So if you had five clients in 2022 and one paid by direct deposit, while the other four paid you more than PayPal, you should get two tax forms instead of five. You get a 1099-NEC for the direct deposit customer and a 1099-K PayPal for the other four customers` payments. If you receive a sum of money for goods and services through a payment app, it will be applied to your taxable income.
For the 2022 tax year, you must file a federal income tax return as an individual if your gross income exceeds $12,550, and for joint marriage returns if your income exceeds $25,100. All affected providers have stepped up their efforts to attract small businesses to their platform, as this can help diversify their user base and generate higher transaction volume. For example, Venmo launched small merchants` business accounts last year and has been very successful so far: 1.5 million small businesses opened business accounts with Venmo in the second quarter of 2022. Self-employed individuals are still required to report their income when filing their tax returns, but a new regulation for 2022 requires digital payment apps to report your earnings over $600 directly to the IRS via Form 1099-K. You will then receive a copy of your 1099-K at the end of January or February. The spokeswoman said Zelle could not speculate on other reasons why people might use her service and declined to provide data on the number of users for 2022, according to Bloomberg. If you`re a small business owner and you receive the majority of customer payments by credit card, cash, or cheque, you`re probably not affected. However, if you use third-party processors to get paid, the rules have changed. In 2022, companies like Zelle, PayPal, Square, Stripe, Venmo, and others will send you a 1099-K if you receive more than $600 in payments during the year. Uber and Lyft are also considered third-party organizations or use an organization to pay their workers, so if you`ve had a few gigs with both, you also get a 1099-K. Bottom Line: The tax filing rules for small businesses and gig workers haven`t changed.
The only change is that it`s now easier for those who used Cash App, PayPal, and Venmo to consolidate and report payment information for fiscal year 2022 and beyond to the IRS. You can still share the bill with friends without tax incurredness, but if you receive $600 or more labeled as «goods and services,» or if you have a business account with a payment processing app, you`ll receive a Form 1099-K to report that income to the Internal Revenue Service on your 2022 tax return. See: 8 Ways to Get Free Government Money Before the HolidaysRead More: Do You Sell on Poshmark, Facebook Marketplace or eBay? You may have to pay more taxes. n n n «.concat(self.i18n.t(`search.voice.recognition_retry`), «n If you use multiple payment platforms to receive payments, you may not receive a 1099-K tax form, but that doesn`t mean you don`t have to report that income through your taxes. Read on to see what rules apply to you and how this change will affect your payments and taxes. In case of confusion, you should talk to a tax advisor about your particular situation. In an explanatory document on the new tax changes, the IRS said those changes also apply to people who sell items on online auction sites like eBay and people who «have a holiday craft business,» as long as they accept credit card payments through those apps. 5 Things You Need to Do When Your Savings Reach $50,000 The IRS is very clear that anyone making professional payments on a P2P platform like PayPal, Venmo, and Stripe is responsible for reporting that income, according to Intuit/TurboTax. The platforms themselves are also required to provide the IRS with information about customers who receive payments for the sale of goods and services through those platforms. Zelle® is a payment platform.
Zelle® does not levy taxes on transactions made on its network. If the payments you receive through the Zelle Network® are taxable, it is your responsibility to report them to the IRS. If you have any questions about your tax obligations, please consult a tax advisor. S.H. Block Tax Services can answer all your tax compliance questions for payments for services such as Venmo and Zelle. Call our office at (410) 727-6006 or fill out our contact form for free advice on this or other tax matters. This can save you from spending your time tracking paperwork and adding up third-party payments. That doesn`t mean you don`t have to report income! If your total income minus your business expenses (also called net income) exceeds $400, you must file the SE Schedule for the self-employment tax. This is true whether you get 1099-Ks or not. A 2014-2016 IRS analysis estimated that unreported activities by individuals and small businesses cost $144 billion a year in taxes and found that Americans report less than half of the income that is not automatically reported to them, according to Bloomberg. If you sell personal items at a loss, such as disposing of unused items at a flea market, payments for those items are not subject to income tax.
However, if the buyer marks the payment as «Goods and Services» and you have more than $600 in gross payments for items labeled as «Goods and Services,» you will receive a Form 1099-K. What this means for payment providers: Zelle could see more small businesses switching to its platform, as it could help users minimize their corporate tax burden. Conversely, Cash App, PayPal and Venmo could experience a decline in the number of business users and volume. Prior to this legislation, third-party payment platforms only reported to the tax authorities if a user had more than 200 commercial transactions and made more than $20,000 in payments in a year. Regardless of what the technical rules say, Rosenthal said people should be very careful to assume they can avoid taxes by using Zelle instead of a P2P platform. If you`ve received small payments for goods and services, such as side work or hobby income, you won`t get a 1099-K if the total is less than $600. If you received more than $600 but it was spread across multiple payment platforms, you may not receive a 1099-K from any or all of these apps. Click below to fill out our support form and submit a TicketSupport form. Food stamps: what is SNAP EBT`s maximum benefit for 2023? Now that this new law is in effect, payment apps like PayPal can contact you to confirm tax information such as your employer identification number, individual tax identification number, or social security number.
If you own a business, you probably have an EIN, but if you`re a sole proprietor, sole proprietor, or gig worker, provide an ITIN or SSN. Why it`s important: The rule was probably introduced to improve tax reporting. An estimated $144 billion in personal and small business taxes went unreported between 2014 and 2016, according to IRS data cited by Bloomberg. Rumors are circulating that the IRS is cracking down on money sent to family and friends via third-party payment apps, but that`s not true. Personal transactions involving gifts, favours or refunds are not considered taxable. Examples of non-taxable transactions include: However, if you have a secondary business where you buy items and resell them at a profit via PayPal or another digital payment app, winnings over $600 are considered taxable and will be reported to the IRS. 10 Things You Can Do Now If Your Credit Score Is Below 700 Make sure you register your purchases and transactions online to avoid tax-free income tax – and if in doubt, consult a tax advisor for help. Here`s some good news: Getting a 1099-K can relieve you of some of the manual labor involved in filing your self-employment tax returns. Previously, self-employed individuals received 1099 MISC or 1099 NEC tax forms from each individual client they worked for if they earned more than $600.