The Internal Revenue Service (IRS) has decided to delay the enforcement of the “$600 rule” for third-party payment platforms like PayPal, Venmo, or Cash App. Originally planned to be put into action, the rule is now set to be enforced in the 2024 tax year, extending an extra year for affected taxpayers to prepare before the new reporting threshold takes effect.
The “$600 rule” mandates that users of third-party payment platforms engaged in business activities must declare payments of at least $600. This new requirement, differing from the previous rule with a higher threshold, demands third-party payment platforms to dispatch eligible business account holders a Form 1099-K, revealing the income.
It’s crucial to comprehend that the IRS has consistently required individuals to report all taxable income, including profits from selling goods and services as a business. The Form 1099-K is an essential reporting document specifically created for transactions conducted through third-party network transaction platforms such as Venmo, Cash App, and PayPal.
While the previous rule set the threshold at earnings of at least $20,000 or 200 or more transactions, the “$600 rule” was initially intended to supplant it at the end of the preceding year. However, to facilitate a seamless transition, reporting will persist under the old rule until December 31, 2023.
Commencing next year, a fresh IRS regulation will demand that anyone garnering over $600 on payment apps, like Venmo, in 2023 receive a 1099-K form. The previous threshold was earning $20,000 over 200 transactions. pic.twitter.com/TaygGwFBep
— CBS Evening News (@CBSEveningNews) April 12, 2023
For the 2022 tax year, taxpayers will adhere to the guidelines of the prior IRS rule and will receive a 1099-K form if they earned at least $20,000 or conducted a minimum of 200 transactions. The enforcement of tax forms triggered by the “$600 rule” is now slated for the subsequent year.
This regulation primarily affects individuals involved in side gigs, small enterprises, or part-time work using business accounts on third-party payment platforms. Personal transactions, such as transferring money for dining expenses or holidays without a business account, do not come under the scope of this regulation.
It’s imperative to note that even if earnings fall below the 1099-K threshold, individuals are still obliged to report their taxable income. Business proprietors and others with income not subject to upfront taxation are counseled to set aside approximately 20% of their earnings for tax purposes, ensuring financial readiness.
The decision to postpone the “$600 rule” acknowledges concerns about unforeseen 1099-K forms and affords taxpayers more time to comprehend and adhere to the new reporting thresholds. It also addresses the necessity for taxpayers to effectively differentiate personal and business payments.
As tax season draws near, individuals are advised to shun last-minute preparations and seek guidance from tax experts or utilize seamless platforms like TurboTax for a smoother filing process.
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