global Tax 5 FAQs: Changes to Tax Reporting for Venmo and Other Third Party Payment Networks January 26, 2022 Does your business use cash apps like Venmo and Paypal? The IRS has released major changes to the 1099-K reporting requirements in 2022. Read on. Did you read our blog, IRS Releases Major Changes to 1099K Reporting in 2022? You’ll want to check it out for valuable information regarding 1099-K reporting and how tax requirements for third party payment networks have changed for 2022. PBN recently caught up with Paul Oliveira to hear his thoughts on these changes—check them out below. 5 FAQs- Changes to 1099k Reporting What is changing regarding taxes for third-party payment systems this year?Third-party payment networks such as PayPal, Stripe, Venmo and others are now subject to increased tax reporting to IRS. Essentially, if someone receives $600 or more in total for goods or services through a third-party payment network, those payments will be reported to IRS. This new rule was enacted back in March 2021 as part of the American Rescue Plan. It represents a significant reduction in the threshold for reportable payments.Who is going to be impacted by this new policy?The policy mainly impacts business owners using these third-party payment networks. It addresses a concern that IRS has had for some time that those business owners who utilize these payment networks were escaping tax by underreporting their income. Beginning January 1, 2022, third-party payment networks are required to provide users meeting the $600 threshold with a Form 1099-K. This gives users some time to plan since the new reporting will impact their 2022 tax returns.How would you advise those affected to start tracking/planning for how this change will impact them, both for tax preparation purposes as well as revenue forecasts?Some amounts that are going to be reported on Form 1099-K may include both taxable and nontaxable amounts. So users, if they don’t already have one, will need to develop a strong recordkeeping system that will help them avoid being overtaxed. You need to be disciplined in maintaining receipts and other financial documents to help justify all of the expenses you may be entitled to deduct against your income. Maintain your bank statements as well. You can store all of this information either electronically or old-fashioned paper copies.The other thing I suggest is that you separately track your business transactions on third-party network platforms from your personal transactions. This will be enormously helpful to business owners at tax time.Most of all, business owners will need to get educated on what they are entitled to for business deductions. Now that more of their cash receipts are being reported to IRS, this will be of greater concern. At the risk of making a shameless plug for my industry – Consult Your Tax Advisor!Do you expect this will have a significant impact on RI businesses?I haven’t seen statistics specific to Rhode Island, but we know that the use of third-party payment networks has grown enormously around the world since they were first introduced 20 years ago. The growth of the gig economy more recently has only accelerated this impact. So I’m sure RI businesses will be impacted proportionally.How, if at all, might this change the way people pay for services (in cash rather than through a payment system to avoid the tax policy change)?Cash?? What’s that? No one uses cash anymore. You can barely get big box stores to accept cash. No, I think the trends are too far along for this tax policy to have any impact on reversing them. For those who are impacted, this is a new cost of doing business. Maybe on the fringes, those conducting a side hustle might decide the extra administrative burden and tax cost isn’t worth continuing on. But I expect most businesses will adapt. Questions? Contact us.