Earnings over $600 will now be reported to the IRS if you own your own business or have a side hustle and are paid through digital apps such as PayPal, Zelle, Cash App, or Venmo. A provision in the 2021 American Rescue Plan, which went into effect on January 1, requires third-party payment processors to report to the IRS transactions totalling more than $600 per year.
Prior to the passage of this legislation, a third-party payment platform would only report to the IRS if a user took out payday loans. Over the course of a year, HI had over 200 commercial transactions and made over $20,000 in payments.
This new legislation will not affect you if you sell personal items and collect money through third-party payment apps. However, if you buy items and resell them for a profit using PayPal or another digital payment app, any profits over $600 are taxable and must be reported to the IRS. We recommend that you set up separate PayPal, Zelle, Cash App, or Venmo accounts for your professional finances.
If you earn $600 or more in annual income for goods or services, Paypal and other third-party payment companies will issue you a 1099-K tax form. This is done so that the IRS can keep track of transactions made through payment apps, which frequently go unreported. Paypal stated in a press release that “the IRS will be able to cross-reference both our report and yours.”
