Valley merchants and part-time sellers who use PayPal or Venmo to do regular business transactions will notice some extra paperwork this year when it comes time to do their taxes.In January, the …
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Valley merchants and part-time sellers who use PayPal or Venmo to do regular business transactions will notice some extra paperwork this year when it comes time to do their taxes.
In January, the Internal Revenue Service rolled out a new reporting requirement requiring those who use the third-party networks to report commercial transactions if they total more than $600 per year.
Individuals will be required to fill out a 1099-K form starting with the 2022 tax year as part of the American Rescue Plan Act of 2021, which amended some Internal Revenue Code to require third-party settlement organizations to report goods and services transactions, according to a PayPal press release.
In the past, the 1099-K was required only when a user receives “more than $20,000 in goods and services transactions and more than 200 goods and services transactions in a calendar year,” the release stated.
“The critical feature is the IRS is watching,” said Marc Lamber, a local attorney with Fennemore in Phoenix. “It’s not a new tax. It’s a new reporting requirement.”
Lamber, an expert on technology law, said the new code doesn’t apply to personal transactions such as paying friends or family for eating out at a restaurant.
Instead, the attorney said the third-party companies will seek more information to help determine what kind of transactions are taking place.
For instance, the apps on PayPal and Venmo allow users to choose the appropriate category for each transaction. There is a “Friends and Family” tab and a “Goods and Services” tab under payment type, according to the press release.
Buying an item such as a couch or concert tickets to an upcoming show?
The press release said users can tag those transactions under “Goods and Services” to help protect themselves in an event the “transaction doesn’t go as expected.” Those transactions could be protected depending on which type is being disputed.
“They are asking for additional info about you,” Lamber said. “The third-party apps are asking whether it’s business or personal. They are kind of relying on people to be honest.”
Lamber said these moves will allow the IRS to recover more than $8 billion during the next 10 years in additional tax revenue.
The IRS now will be able to cross reference documents filed by businesses that use third-party networks, Lamber said.
“If there are discrepancies, they will identify those,” he said.
The new tax code applies to those who sell items online and those who have a business such as a craft business during the holidays, according to the IRS website.
According to the IRS, the new tax code applies to those who sell items on Internet auction sites such as eBay Inc. “for the gross amount of proceeds for the goods or services purchased from you through the use of a payment card in a calendar year,” the IRS website said.
Lamber said the new tax code includes people who rent out homes on websites such as Airbnb. In the past, it made it easier for people to avoid paying the proper taxes.
“All this is trying to do is to close the loop,” Lamber said.
Brent Ruffner Lead News Reporter | Daily Independent @AzNewsmedia
Journalism has fascinated Brent Ruffner since junior high school.
Since 2001, his stories have been published in newspapers from the Albuquerque to the Arizona and he has always had a knack for making sure his facts are right and his words are to the point.
Growing up, Brent watched as sports reporters covered his beloved Phoenix Suns, a team he followed since Charles Barkley first arrived in Phoenix via trade in 1992. Sports reporting was a dream back then.
But after gaining some writing experience, Brent found a love for news instead of covering different types of sports. In 2008, he moved to New Mexico and covered crime, schools and city beats all while holding elected officials accountable.
He covered stories that ranged from a DEA drug bust gone bad to an award-winning story on school lunches.
In Arizona, Brent was a freelance writer who covered everything from the importance of citrus in the state to Esteban owning a store in downtown Prescott.
Brent is a 2007 graduate of the Walter Cronkite School of Journalism and Mass Communication at Arizona State University.
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