The American Rescue Plan Act will be effective on January 1, 2022. Business owners earning $600/yr using Venmo, Zelle, Cash App, and PayPal are now required to file a 1099-K.
The American Rescue Plan Act passed on March 11, 2021, which included a massive change for business owners and side hustlers. It’s been a long time coming and will be effective on January 1, 2022.
Disclaimer: Please consult with your tax accountant or professional tax expert before adhering to any of these recommendations.
– Jerris Madison about The American Rescue Plan Act
If you’re not sure what that means for your business or side hustle earnings, then let us spell it out for you: if you make more than $600/yr using Cash App, Venmo, PayPal, and Zelle to receive payments from third-party networks like Uber and Lyft (as well as other services), then 1099-K reporting is required.
That’s right – these new IRS changes mean that all third parties who wish to use the network must file a 1099-K with their taxes each year.
So, what does this mean for you? In addition to owing taxes on your side, hustle earnings from Cash App, Venmo, PayPal, and Zelle – depending on your tax bracket – if it’s the only source of income, that will be a 1099-K filing requirement.
If you’re doing third-party work as a side hustle, then it may be time to consider some new options on how you’re getting paid, aside from Cash App, Venmo, PayPal, and Zelle.
Here are a few other ways you can get your third-party income:
– through a business credit card
– through an employer reimbursement program
– as part of your self-employment income on Schedule C (which you can do even if you’re an employee)
If third-party work is the only source of income, then 1099-K filing requirements may apply. If it’s not and you’re using a mix of sources for income, then you’ll only need to worry about 1099-K filing requirements if third-party services are the majority.
The bottom line? Use Cash App, Venmo, PayPal, and Zelle as part of your side hustle strategy at your own risk – especially when it comes time to file taxes.
Understanding Your Form 1099-K under The American Rescue Plan Act
According to irs.gov, Form 1099-K, Payment Card and Third Party Network Transactions is an IRS information return used to report certain payment transactions to improve voluntary tax compliance.
You should receive Form 1099-K by January 31st if, in the prior calendar year, you received payments:
- from payment card transactions (e.g., debit, credit, or stored-value cards), and/or
- in settlement of third-party payment network transactions above the minimum reporting thresholds of –
- gross payments that exceed $20,000, AND
- more than 200 such transactions
What does my Form 1099-K report to me?
A Form 1099-K includes the gross amount of all reportable payment transactions. You will receive a Form 1099-K from each payment settlement entity from which you received payments in settlement of reportable payment transactions. A reportable payment transaction is defined as a payment card transaction or a third-party network transaction.
- Payment card transaction means any transaction in which a payment card, or any account number, or other identifying data associated with a payment card, is accepted as payment.
- Third-party network transaction means any transaction that is settled through a third-party payment network, but only after the total amount of such transactions exceeds $20,000 and the aggregate number of such transactions exceeds 200.
The gross amount of a reportable payment does not include any adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts, or any other amounts. The dollar amount of each transaction is determined on the date of the transaction.
NOTE: The minimum reporting thresholds of greater than $20,000 and more than 200 transactions apply only to payments settled through a third-party network; there is no threshold for payment card transactions. You can read more here.
More Info About Form 1099-K under The American Rescue Plan Act
If you have questions about the amount reported, contact the filer (see the upper left corner of Form 1099-K). If you have questions about the merchant or third-party transaction network, find the contact in the lower-left corner of Form 1099-K.
- FAQs on Payment Card and Third Party Network Payments
- 1099-K Reporting Requirements for Payment Settlement Entities
- Third-Party Reporting Information Center
- Gig Economy Tax Center
To learn more about The American Rescue Plan Act and 1099-K filing requirements for Cash App, Venmo, PayPal, and Zelle. You can also check out this insightful article on Forbes: Tax Information Reporting Comes To Gig Economy Participants — Now What?.
Photo Credit: Photo by Oladimeji Ajegbile from Pexels, Karolina Grabowska from Pexels
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