There have been recent questions and concerns about the American Rescue Plan Act – a new IRS tax law, requiring certain payment networks to report $600 or more in total payments received for goods and services in a calendar year.
Our goal is to provide clarity on how this new law may impact individuals and businesses. That said, the Frequently Asked Questions and subsequent responses below are for informational purposes only. We strongly advise you to consult with a tax or legal professional.
What changes have been made to the tax reporting law?
Starting January 1, 2023, businesses and individuals that receive at least $600 a year for goods or services via digital payment apps – such as Venmo or PayPal – will receive a 1099-K form for transactions. The previous reporting threshold was $20,000.
In other words, third-party payment services (like Venmo/Paypal) and taxpayers meeting the $600 threshold, regardless of the number of transactions, are required to file a1099-Kfor the 2023 tax year.
Does this change affect individuals who use apps like PayPal & Venmo for personal reasons?
This does not affect individuals who use these apps for reimbursem*nts, personal gifts or charitable donations. The IRS is not taxing transactions between family and friends. For more information, please refer to the IRS FAQ site
What is form 1099-K?
Form 1099-K is an IRS information return used to report certain payment transactions to improve voluntary tax compliance. This form helps ensure online retailers are reporting the appropriate amount of sales for tax purposes. Businesses accepting payments via credit, debit, and third-party payment networks like Venmo and PayPal are required to report this information on Form 1099-K.
When do these changes become effective?
Changes to the tax reporting law become effective January 1, 2023 for transactions paid in 2022 that exceed $600.
Are Zelle transaction subject to tax reporting?
FirstBank’s digital payment service, Zelle, works differently than Venmo and PayPal, and according to Zelle®it does not report any transactions made on theZelleNetwork® to the IRS, even if the total is more than $600 for both businesses and personal. The law requiring certain payment networks to provide forms 1099K for information reporting does not apply to theZelleNetwork®.
For more information about this, please visit Zelle.
Where can I go for more information?
For more information, you can refer to the IRS FAQ site.
FirstBank does not provide tax advice, please discuss any questions or concerns with your tax advisor or accountant. You may refer to the IRS FAQ site for more information.
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