So long are the days of tax-free income for your small business. As of this year, incoming payments of $600 and over through networks such as Venmo and CashApp will be reported to the Internal Revenue Service.
The new policy, which came into effect January 1, 2022, will require these networks to send users a form 1099-K in either paper or electronic form. These changes will affect 2023 tax returns for the 2022 tax year.
The policy came because of the $1.9 trillion stimulus package – the American Rescue Plan – which was passed by President Joe Biden last year.
Zelle Opts Out
However, there is a third-party network that claims they are exempt from this new rule. Zelle, which is commonly used for bank-to-bank fund sending, says they are not subject to this policy because it only applies to buyer and seller transactions. Additionally, Zelle merely provides a means of communication between banks and the paying individuals, according to their network operator, Early Warning Services, LLC.
Old Rules Out The Door
Previously, the IRS was notified if buyer-seller transactions either exceeded $20,000 or had more than 200 transactions within one tax year. Now, there is no minimum transaction amount, plus the significantly reduced transaction value of $600.
Thankfully, however, there may be a few exceptions.
Possible exempt transactions include:
-Monetary gift from a loved one
-Reimbursement from a friend or partner
-Share of rent paid by a roommate
For these exempt transactions, reporting to the IRS is not necessary. However, be sure senders correctly label these transactions. For example, “March rent.” For small business owners, consider creating a separate Venmo or other third-party network account to easily track these transactions, especially in the event of an audit.
By Rebekah Harcrow
Do you have a story for The Advocate? Email editor@corvallisadvocate.com