Do you use Paypal or Venmo? How IRS 1099-K tax changes will or won't impact you in 2022
Selling on the likes of Etsy and eBay? The IRS doesn't want you to forget its share from your wares.
Under the American Rescue Plan Act, people who sell goods or services on platforms like Etsy, eBay and other sites that use third-party transaction networks – like PayPal, Cash App and Venmo – will be issued a tax form called a 1099-K for online sales totaling $600 or more starting next year.
Currently, online sellers only received these forms if they had at least 200 transactions worth a combined $20,000 or more.
But there has been confusion on social media sites about whether this change will impact people who use those services for everyday transactions.
Here’s what we know:
Anything over $600 requires a 1099?
It doesn’t matter if you sell online as a side hustle or are full time by early 2023, all online sellers could receive a 1099-K for sales made in 2022.
If you sold $600 or more worth of goods, you could be paying the taxman, or at least needing to account for the income you earned on your tax return.
This has always been a requirement when filing your taxes. The American Rescue Plan Act only broadens the reporting needed to collect tax information once a taxpayer nears or reaches $600 in goods and services transactions. The previous threshold was $20,000 and 200 transactions.
Who will be affected?
The IRS wants to make sure it is seeing all income on tax returns of part-time resellers and business owners, including online sales.
Platform users such as eBay, Etsy, Uber and others that use third-party payment systems will be the ones to get a 1099-K. The federal agency already expects to hear from anyone whose net earnings from self-employment are $400 or more.
Will I have to pay taxes when sending and receiving money on PayPal and Venmo?
This new threshold change, according to PayPal, is currently only for payments received for goods and services transactions, so this doesn’t include things like paying your family or friends back using PayPal or Venmo for dinner, gifts, shared trips, etc.
How will the IRS know whether I am paying for goods or services?
PayPal and Venmo users tag their transactions as either personal/friends and family or goods and services when they are purchasing an item or paying for a service. Selecting that tag allows those transactions to become eligible for coverage under PayPal and Venmo’s Purchase Protection Program.
Is the 1099-K threshold change specific to PayPal, Venmo?
No, it is industry wide for all third-party settlement organizations that you may use to accept payments for the sale of goods and services. It also impacts all financial institutions that consumers use, not just PayPal and Venmo, such as bank accounts, and other ways people can send and receive money, according to the act.
What if I sell personal property, like a couch, for $600 or more but it was less than its original value?
According to PayPal, while banks and payment service providers, like PayPal and Venmo are required by the IRS to send customers a Form-1099K if they meet the $600 threshold amount, there are certain amounts that may be included on the form that are generally excluded from gross income and therefore are not subject to income tax. This includes:
Amounts from selling personal items at a loss
Amounts sent as reimbursement
Amounts sent as a gift
So, for example, if you purchased a couch for $1,200 and sold it for $800, this amount would not be subject to income tax. Sellers are encouraged to speak with a tax professional when reviewing their 1099-Ks to determine whether specific amounts are classified as taxable income.
Do you have a hobby or a business?
Still trying to figure out where your online selling lies? Check out the IRS website for more information and to gauge how your taxes may change here or go to PayPal to learn more.
This article originally appeared on Augusta Chronicle: Paypal, Venmo 1099 tax change for 2022: What we know about $600 limit
