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What reporting requirements must payment app providers follow?

On Behalf of | Mar 23, 2022 | Criminal/Civil Tax Litigation |

Beginning in 2022, payment app providers must report to the Internal Revenue Service their accounts totaling $600 or more each year in transactions. If you accept credit card payments online through a peer-to-peer app, you could receive a copy of Form 1099-K, which the app provider also sends to the IRS. notes that the dollar amount on the form represents unadjusted aggregate gross receipts. It reflects the sales volume you generated through a particular payment app during the tax year. If you use several apps, you may receive a 1099-K from each one.

Provider and payee responsibilities

The IRS requires payment app providers to furnish Form 1099-K information to their users no later than January 31 in the following calendar year after transactions took place. The gross amount reported does not reflect users’ expenses such as fees paid to payment apps or refunds to customers.

As a payee receiving a Form 1099-K, the IRS requires reporting income or sales revenue with your annual tax return. As noted by Intuit, you may deduct business expenses from your gross earnings. Keeping records of payments received and invoices sent through payment apps could help to separate personal from business spending.

Separation of business and personal transactions

To distinguish between personal and business transactions made through payment apps, you may need to classify each payment sent or received. CNN reports that transactions categorized as “business” include payments received for goods or services and tips. “Personal” transactions include reimbursements or gifts. Without proper classification, payment apps may report personal transactions as gross income from a business.

The 2021 American Rescue Plan requires payment app providers to provide both the IRS and users with transaction information through Form 1099-K. You may report your income accurately and without incurring liabilities on nontaxable income by separating personal and business transactions.