Tax day: Venmo and PayPal users face more paperwork under new US rules

theguardian.com:

It’s tax day in the US, the deadline for most individuals to file and pay tax owed. But while this year’s tax season may be closing for millions of Americans who are paid through a digital payment service such as PayPal, Venmo, Zelle and Cash App, the next tax year could come with even more complications.

Under a new law buried in the American Rescue Plan Act of 2021, digital payment services, or Third-Party Settlement Organizations (TPSOs), will now be required to notify federal tax collectors of payments amounting to more than $600 in total during the course of the year.

Before the change, taxpayers received a notification – known as a 1099-K – only if they processed more than 200 business transactions amounting to more than $20,000 over a year.

Now, with the payment threshold reduced to $600, US taxpayers who have never seen a 1099-K will be receiving one. No one knows how many Americans will be getting these forms, but tax lobbyists estimate the number at as high as 20 million.

According to the small business consultant Gene Marks, writing in the Guardian earlier this year, “the reality is there are 30 million small businesses, freelancers, solo-preneurs and independent contractors in the US, and … many of them who receive a number of small payments from many customers throughout the year may, well, forget”.

For individuals whose record keeping is sub-par, says Marks: “No worries! The IRS will now be able to find out what you earned anyway.”

Venmo says it will send out 1099-K forms to business profile owners after January next year to anyone who receives payments for the sale of goods or services through the service.

The threshold varies with the owner’s state of residence. For most states, the threshold is $20,000 in gross