Earlier this year, the IRS began requiring U.S.-based peer-to-peer payment apps — such as Venmo, PayPal and CashApp — to report payments received for goods and services of $600 or more a year.
Washington Post personal finance columnist Michelle Singletary joined Boston Public Radio on Wednesday to explain what these reporting changes mean for the average payment processor user, and why she believes backlash to the new rule is unfounded.
The IRS previously set the standard that such companies had to send a form — IRS Form 1099-K — to users whose gross payments received for goods-and-services transactions exceeded $20,000 over more than 200 transactions within the calendar year. Even if users did not receive a 1099-K but met those requirements, Singletary said, they were still required to report that taxable income.
“You could send payments through those apps, but unless you had business worth $20,000 and 200 transactions, they didn't have to send you a 1099-K,” Singletary explained. “However, that did not mean that you weren't supposed to be reporting that information to the IRS. The difference is now [the IRS is] going to get a paper that says you got some money that you're supposed to be claiming.
“[The IRS] found that when you have these third party reporting requirements, people pay their taxes, and billions of dollars could be collected by this change in reporting requirement,” she added.
While the new IRS income-reporting requirements sparked backlash online, those who use third-party payment apps for personal transactions like splitting a restaurant bill among friends will not be impacted by the new income-reporting requirements. People who use the apps for their side-hustles, gig-economy jobs or small businesses will — provided that they meet the $600 or more requirement.
“I get it, because it appears as if [the IRS is] going after the little guys when billionaires are getting away,” Singletary said. “And while it's true that we need to do more to make sure people who are making tons of money pay their fair share, you're still supposed to claim your income.”
