From January 1, 2022, all self-employed people, independent contractors and small business owners who sell different types of products and services will have to follow a new tax rule. As part of this rule, the IRS will consider their digital payment service accounts, and they will need to account for these earnings on their tax returns. All who accept credit card payments through PayPal, Venmo, Cash App, Zelle, or any other third-party provider will have to report the income to the IRS.
Until this new rule was settled, it was up to business owners and self-employees to report all income they made by selling goods and services to customers, but now this would be under IRS legislation. Therefore, if you receive a minimum of $600 throughout the year, your payment service will have to report all transactions to the IRS.
Starting in January 2023, payment services must submit 1099-K forms to all small businesses that process payments through them, letting them know the revenue they reported on their behalf to the IRS for 2022. If you sell certain products on eBay Amazon.com, or Etsy, you can expect one of these models next year. Payment Services will add an additional form for payers to fill out during the checkout process to help distinguish private transactions from purchases of goods and services.
According to the IRS disclosure, the information collected will be used in new screening and collection approaches, as well as taxpayer outreach and education products and services.
In 2022, you can expect some additional questions from your payment service provider to make sure you are following the new tax rule correctly. Back in November, PayPal issued a press release saying: “You may notice that in the coming months we will ask you for your tax information, such as your Social Security number or tax ID, if you have not already provided it to us, in order to continue to use your account to accept payments for transactions Sell goods and services and to ensure that there are no issues when these changes take effect in 2022. This helps us meet our obligations to the IRS and ensures that you can continue to use your account and access PayPal and Venmo’s features and services.”