IRS Offers Tax Break for PayPal and Venmo Users

The Internal Revenue Service (IRS) has announced a second consecutive delay in implementing a 2021 law that required payment platforms like Venmo, PayPal, and Cash App to send tax forms known as 1099-Ks to individuals who received more than $600 in the current tax year. 

This delay is aimed at reducing taxpayer confusion, following feedback from taxpayers, tax professionals, and payment processors.

Without this delay, approximately 44 million 1099-K forms would have been sent to millions of taxpayers for the current tax year, even if they didn’t owe taxes on the payments. 

Instead, the IRS will continue to rely on the existing threshold of more than 200 transactions exceeding $20,000 in income for sending 1099-Ks for the current tax year in early 2024.

Eric Bronnenkant, a CPA and head of tax at Betterment, noted that this change would still require all taxable income to be reported to the IRS, emphasizing the need for clear guidelines to help taxpayers navigate reporting requirements.

Additionally, the IRS announced a significant change for tax year 2024, with the reporting threshold increasing from $600 to $5,000.

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IRS Delays $5,000 Payment App Reporting Rule

irs-offers-tax-break-paypal-venmo-users
The Internal Revenue Service (IRS) has announced a second consecutive delay in implementing a 2021 law that required payment platforms like Venmo, PayPal, and Cash App to send tax forms known as 1099-Ks to individuals who received more than $600 in the current tax year.

This means that individuals who receive more than $5,000 in payments via platforms like PayPal in 2024 will receive the 1099-K form in early 2025 to complete their 2024 tax returns.

Erin Collins, the National Taxpayer Advocate, welcomed the IRS’s decision, emphasizing the importance of clarity and certainty for taxpayers and tax professionals.

However, some Republican lawmakers argue that the repeated delays and confusion surrounding the $600 rule suggest it is unworkable and should be reconsidered. They suggest starting over with a new approach.

The 2021 American Rescue Plan initially required users to report transactions exceeding $600 through payment apps for goods and services. 

Prior to this provision and for the current year, the reporting requirement applied only to taxpayers who received over $20,000 and had more than 200 transactions.

The rule had faced pushback from online selling platforms, which argued it would create confusion and difficulties for sellers. Republican lawmakers had also criticized it as government overreach, potentially impacting those who use payment apps for personal transactions among friends and family.

The IRS’s decision to delay and transition to a phased-in approach reflects efforts to balance tax administration needs while preventing unnecessary confusion among taxpayers and tax professionals.

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