Beginning January 1, 2022, the Internal Revenue Service (IRS) implemented new reporting requirements for payments received for goods and services, which will lower the reporting threshold to $600 for the 2022 tax season, from 2021’s threshold of $20,000 and 200 transactions.
New U.S. Tax Reporting Requirements: Your Questions Answered
How these new tax reporting changes may impact you when paying or accepting payments with PayPal and Venmo for goods and services
Last Updated: March 4th, 2022 Recently, there have been some questions regarding changes U.S. tax reporting requirements that could impact the information PayPal shares with the Internal Revenue Service (IRS) about transactions made using PayPal and Venmo for the sale of goods and services. We’ve answered some of the most pressing questions below – and we’ll be sure to keep this list updated as more details are finalized.
Q: Will I have to pay taxes when sending and receiving money on PayPal and Venmo - what exactly is changing?
Beginning January 1, 2022, the Internal Revenue Service (IRS) implemented new reporting requirements for payments received for goods and services, which will lower the reporting threshold to $600 for the 2022 tax season, from 2021’s threshold of $20,000 and 200 transactions. Here’s some more detail:
1099-K Threshold Change:
This new Threshold Change is only for payments received for goods and services transactions, so this doesn’t include things like paying your family or friends back using PayPal or Venmo for dinner, gifts, shared trips, etc.
This change was introduced in the American Rescue Plan Act of 2021, which amended some sections of the Internal Revenue Code to require Third-Party Settlement Organizations (TPSOs), like PayPal and Venmo, to report goods and services transactions made by customers with $600 or more in annual gross sales on 1099-K forms. Currently, a 1099-K is only required when a user receives more than $20,000 in goods and services transactions and more than 200 goods and services transactions in a calendar year.
Q: Will the updated 1099-K Threshold Change apply if I sell personal property, like a couch or an item at a garage sale, for $600 or more if it was sold for less than its original value? Will I be issued a Form 1099-K?
Form 1099-K is an IRS informational tax form that is used to report goods and services payments received by a business or individual in the calendar year. While banks and payment service providers, like PayPal and Venmo are required by the IRS to send customers a Form-1099K if they meet the $600 threshold amount, there are certain amounts that may be included on the form that are generally excluded from gross income and therefore are not subject to income tax. This includes:
Amounts from selling personal items at a loss
Amounts sent as reimbursement
Amounts sent as a gift
So, for example, if you purchased a couch for $1200 and sold it for $800, this amount would not be subject to income tax.
We encourage customers to speak with a tax professional when reviewing their 1099-Ks to determine whether specific amounts are classified as taxable income.
Q: What is a Goods and Services payment with PayPal and Venmo?
Both PayPal and Venmo offer a way for customers to tag their peer-to-peer (P2P) transactions as either personal/friends and family or goods and services by choosing the appropriate category for each transaction. Users should select Goods and Services whenever they are sending money to another user to purchase an item, like a couch from a local ad listing or concert tickets, or paying for a service. These transactions are also eligible for coverage under PayPal and Venmo’s Purchase Protection Program. Goods and services payments are designed to provide both buyers and sellers peace of mind knowing that they may be covered if the transaction doesn’t go as expected.
Q: Is the 1099-K Threshold Change specific to PayPal and Venmo?
No. This is industry wide for all Third-Party Settlement Organizations (TPSOs) that you may use to accept payments for the sale of goods and services.
Q: When do these changes come into effect?
The 1099-K change took effect January 1, 2022. PayPal and Venmo will be required to provide customers with a 1099-K form if they receive $600 or more in goods and services transactions during the 2022 tax year.
This means you will need to take into account the Threshold Change with your Tax Year 2022 filings.
Q: What is a Form 1099-K?
Form 1099-K is an IRS informational tax form used to report payments received by a business or individual for the sale of goods and services that were paid via a third-party network, often referred to as a TPSO or credit/debit card transaction. The IRS requires TPSOs, such as PayPal and Venmo, to issue a Form 1099-K, which shows the total amount of payments received from a TPSO in the calendar year. Taxpayers should consider this amount with their tax advisor when calculating gross receipts for their income tax return. For more information, visit the IRS website here.
Q: What do I need to do in 2022 when the 1099-K Threshold Change takes effect?
You may notice that in the coming months we will ask you for your tax information, like a Social Security Number or Tax ID, if you haven’t provided it to us already, in order to continue using your account to accept payments for the sale of goods and services transactions and to ensure there aren't any issues as these changes take effect in 2022. This helps us meet our obligations to the IRS and ensures that you will be able to continue using your account and access PayPal and Venmo features and services.
For the 2022 tax year, you should consider the amounts shown on your Form 1099-K when calculating gross receipts for your income tax return. The IRS will be able to cross-reference both our report and yours.
Q: Haven’t I always had to declare my income from the sale of goods and services transactions? What's different?
Reporting and declaring any income, either personal or through a business, has always been a requirement when filing your taxes with the IRS. The change broadens the scope of reporting such that all TPSOs, like PayPal and Venmo, need to collect tax information once you near or reach $600 in goods and services transactions (instead of the prior threshold of $20,000 and 200 transactions), so that we can remain compliant with our regulatory requirements and share those details with the IRS.
This change impacts every financial institution and TPSO that you might use to transact for goods and services, not just PayPal and Venmo. This includes your bank accounts, and other ways you send and receive money.
Q: How does this 1099-K Threshold Change impact how I use PayPal and Venmo?
This change should not impact how you use PayPal and Venmo. You can still continue to use the PayPal and Venmo platforms as you do right now, and the benefits that are offered by sending money via our goods and services P2P feature – including buyer and seller protections on eligible transactions for PayPal and Venmo.
Q: What information do I have to provide to PayPal and Venmo? What do I have to do to ensure I remain compliant?
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. For background, generally businesses use an EIN, while sole proprietors and individuals will use an ITIN or Social Security Number.
Q: Why is this happening now?
The 1099-K reporting requirement was part of the American Rescue Plan Act of 2021 passed earlier this year by Congress and signed into law by the President. The effective date for these new changes is January 1, 2022.
Q: Where can I find more information?
Here are some further helpful resources if you wanted to read more:
Joint Committee on Taxation Technical Explanation of Section 9674 of H.R. 1319, the “American Rescue Plan Act of 2021.” (March 2021)
PWC, American Rescue Plan Act Lowers Form 1099-K Reporting Threshold (March 2021)
IRS, Understanding Your Form 1099-K
Disclaimer: PayPal does not provide tax advice. This content has been prepared for general informational purposes only and is not intended to be relied on for tax advice. For questions regarding your specific circumstances, you should consult with a tax advisor.
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