The American Rescue Plan Act (ARPA) signed into law March 11, 2021, expands reporting requirements for third-party settlement companies such as PayPal, Venmo and Zelle.
This law will affect taxpayers receiving payments for goods and services totaling $600 or more through third-party settlement companies beginning January 1, 2022. Taxpayers will receive a Form 1099-K reporting taxable income includable on their tax returns. The previous annual requirement for a 1099-K was $20,000 or more in the value of transactions or 200 or more transactions.
It is likely that companies will issue Form 1099-K based on their User Agreements, which generally specify whether an account is used for commercial or personal transactions.
If you are using third-party settlement companies for both business and personal cash transfers, we recommend creating separate accounts to avoid commingling non-taxable receipts with business income.
You can read more about the new Form 1099-K requirements here.
Please contact us if you have any questions.