By Cara Beth Lewis
Due to a small change in the American Rescue Acts of 2021, millions of small business owners will be affected by a new tax rule that is being implemented this year. In 2022, payment services like Zelle, Venmo, Paypal, and Cashapp will be required to report your income through their service to the IRS.
Previously, it was up to the seller / small business owner to report their income to the IRS on their own. Because many small businesses receive many payments of various amounts through these services all throughout the year, some payments may slip through the cracks, or not be reported altogether. However, this will no longer be an option as the IRS will have knowledge of what you earned, anyway.
Now, you can expect to receive a 1099 – K form from the payment service(s) you use in 2022 based on the revenue they reported to the IRS on your behalf. Many of these services plan to add or have already added an extra form to identify the nature of payments as they occur.
“You may notice that in the coming months we will ask you for your tax information, like a social security number or tax ID, if you haven’t provided it to us already, in order to continue using your account to accept payments for the sale of goods and services transactions and to ensure there aren’t any issues when these changes take effect in 2022,” PayPal warns. “This helps us meet our obligations to the IRS and ensures that you will be able to continue using your account and access PayPal and Venmo features and services.”
According to theguardian.com, there will be some overlap. For example, if you’re an independent contractor working for a company and you receive more than $600 via a payment service then you’ll likely get both a 1099-MISC from that company and a 1099-K from the payment service. In this situation you’d use the amount on the 1099-MISC and, assuming there are no other amounts from the payment service, you’d disregard the 1099-K.
Paypal shared, “For the 2022 tax year, you should consider the amounts shown on your 1099-K when calculating gross receipts for your income tax return. The IRS will be able to cross-reference both our report and yours.”
If you are a small business owner who uses third-party online payment services, be sure to educate yourself on this topic as you prepare for another year of business.
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