Payment Apps Will Soon Report On Your Income To The IRS

Posted by Richard on February 8, 2023

Making some side cash via the gig economy, maybe giving lifts through Lyft or slinging some goods on eBay? If so, you’ll want to pay closer attention during 2023.
The IRS is planning to drop the 1099-K form threshold from $20,000 to just $600, owing to changes written into the American Rescue Plan Act of 2021.
What that means is third-party cash networks, such as Venmo, Cash App, or PayPal, will need to provide 1099-K forms to people getting money through their apps. It used to be you had to make more than $20,000 to get a tattle-tale 1099-K form from one of these apps. But now, the level is down to $600. Those cash apps are going to remind both you and the IRS of just how much you are making from that side hustle.
In the past, you still had to report the income, of course. If you have been playing it a little casual with the math, that’s over.
Many everyday people — the ones who are clearing out the garage by selling stuff online, for example — could end up handling more paperwork and reporting more income. Folks using apps like DoorDash or Uber as side hustles will also likely be impacted. Before the threshold, the forms involved would have largely been limited to full-time drivers, professional sellers (say, a second-hand goods retailer on eBay), and others handling a lot of transactions.
Income on the 1099-K form is subject to not just income taxes, but also the 15 percent self-employment tax, so it’s smart for taxpayers to plan ahead. Otherwise, they may lack the funds when the time to pay comes, increasing the risk of penalties. Meanwhile, some companies will also need to make sure they have the systems in place to generate and send the reports to their clients.
Initially, the 1099-K threshold change was supposed to land for the 2022 tax year, but the IRS delayed it for a year. Good thing, too, as the American Institute of Certified Public Accountants warned that “The excessive reduction in the de minimis reporting threshold for third-party network transactions has created a significantly large reporting burden.” The organization further elaborated that with the IRS already facing an unprecedented backlog, the lowered threshold would result in yet more delays.
IRS Commissioner Doug O’Donnell announced in December that the 1099-K reporting requirements will be delayed. Still, the threshold definitely will be lowered for the 2023 tax year.