Major Changes to Mobile Payment Apps like Venmo & PayPal Income Reporting
Starting in 2022, the reporting requirement for Mobile Payment transactions has changed from totals exceeding $20,000 to totals exceeding $600, regardless of the total number of transactions.
A payment settlement entity, PSE, (defined below) must file Form 1099-K regarding transactions in excess of $600. If you use Venmo, PayPal, or etc. they are required to file Form 1099-K and will furnish you your 1099-K if you received more than $600 through mobile payments. If any of the payments received was from a business activity you will need this Form 1099-K to complete your 2022 tax return.
What does this mean?
1. If you use Mobile Payments for your business, never commingle your personal and business accounts. So, make two separate accounts – one for only business transactions and the other for only personal.
2. Keep detailed records of money received through these platforms to substantiate if the payment was personal or business income. NOTE all business income must be reported and is subject to tax. Also, to ensure your 1099-K received is reporting the correct monetary amount received.
3. Have the sender detail what the payment is for so when you receive the payment, you can substantiate the amount received.
a. Ex: You received $40 from your friend reimbursing you for dinner.
Their transaction detail, “Paying $40 for dinner total $80 that we split in half.”
b. Ex: You received $100 for a custom quilt you made.
Their transaction detail, “Quilt you custom made for me.”
IRS defines a PSE as a domestic or foreign entity that is a merchant acquiring entity, that is, a bank or other organization that has the contractual obligation to make payment to participating payees in settlement of payment card transactions; or a third-party settlement organization (TPSO), that is, the central organization that has the contractual obligation to make payments to participating payees of third party network transactions
You can read more from the IRS here: