On Jan. 1, 2022, third-party payments apps like Venmo and PayPal were required to begin reporting goods and services payments of $600 or more to the Internal Revenue Service.
The new rule was part of the American Rescue Plan passed by Democrats without a single GOP vote and signed by President Joe Biden in March 2021. It impacts all payments apps, including Venmo, PayPal, Cash App, Zelle, Google Pay, and others.
Prior to the rule, the apps were forced to report to the IRS if a users’ gross income was over $20,000 as a result of goods and services transactions in a single year, or if the user had over 200 qualifying transactions.
Along with the significantly lower threshold, users may also be required to provide their Employer Identification Number, Individual Tax Identification Number or Social Security Number.
The legislation states that “reporting is not required on transactions which are not for goods and services.”
In a November 4 press release, PayPal answered several questions related to the new rule.
“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,” the company explained. “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.”
“This new Threshold Change is currently 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,” PayPal continued.
The third-party payment company also noted that amounts from “selling personal items at a loss” do not need to be reported.
“So, for example, if you purchased a couch for $1200 and sold it for $800, this amount would not be subject to income tax,” the statement added.
Earlier this year, top Democrat lawmakers pushed for a provision that would require all accounts with at least $600 flowing through them to be reported to the IRS. That threshold was raised to $10,000 on top of wages, salaries and federal benefits after a storm of protests from business and banking interests.
Senator Joe Manchin (D-WV) argued even the increased threshold was too intrusive, and businesses and banking groups later echoed Manchin’s comments in a letter to the White House.
“We strongly urge the Administration to withdraw this reporting regime and consider how the IRS can use its existing authorities to directly focus on those taxpayers suspected of evading their taxes instead of casting such a wide net,” the letter stated.
The provision was ultimately scrapped from the final budget bill.
