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New 1099-K Requirements: Do You Have to Pay Tax on PayPal and Venmo??? - YouTube

Channel: Logan Allec

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so if you're like me you use facebook

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and when you use facebook you tend to

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see your friends getting really fired up

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about stuff um for example

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this post that has kind of gone viral

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recently um it says this is insane guess

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what got signed into law with those

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stemi checks you'll now be taxed on the

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twenty dollars you get from mona lawn

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and the forty dollars you got for

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selling something you never use on

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facebook marketplace prior to buying

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enacting this you only had to report a

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1099k form if you received more than

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twenty thousand dollars total in one

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year through a single payment processor

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and exceeded 200 total transactions if

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you use venmo paypal cash app etsy ebay

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shopify etc

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you're about to have to claim any money

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you receive through those apps as

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taxable income in 2022 you won't have

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any choice the payment processors track

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it and the government is forcing them to

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send you on the irs a form to report it

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get ready to pay around 30 back at the

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end of the year and any money received

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for goods and services on those apps

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just got a lot more daunting to kick off

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a small bill on etsy or sell at your

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local farmers market using square

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wow that is a lot of outrage and maybe

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even an implication this person thinks

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that tax fraud and not reporting income

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is acceptable but let's back it up here

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what's going on so the american rescue

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plan act you guys remember that right

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third stimulus expand the child tax

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credit for 21. that was passed this past

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march and had a lot of stuff in it and

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one of the things in it was to change

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the reporting requirements effective for

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2022 um and going forward for the form

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1099k

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this form is used to report payments

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from what the irs calls third-party

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settlement organizations such as venmo

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and paypal so what's this about well

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currently in 2021 if a third-party

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settlement organization pays out during

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the calendar year to a particular payee

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more than 20 thousand dollars and this

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payee received more than 200 payments

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for that organization uh the third party

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settlement organization must report the

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amount of these payments on the form

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1099k which is sent to the payee and

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filed the irs but if either of those two

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requirements are not met a form 1099k

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would not be issued so i could pay

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someone a hundred thousand dollars in

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one transaction through paypal that was

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the only paypal payment that person

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received during the year in 2021 paypal

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would not issue that individual form

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1099k because they did not meet the 200

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payment requirement right however the

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american rescue plan act is changing

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that beginning in 2022 beginning in 2022

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the reporting threshold to file a form

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1099k is a mere 600 in payments for

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goods or services to mirror the form

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1099 and ec threshold so someone

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receives at least 600 in paypal payments

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in 2022 for goods and services paypal

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will send that individual as well as the

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irs a form 1099-k showing the total

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amount of payments that individual

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received from paypal during 2022. does

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this mean that people will be paying

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more in taxes yes

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people who aren't reporting the income

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they should be reporting anyway

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regardless of if they got a 1099 for it

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but the answer to that question is no

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for people who are already doing things

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correctly the confusion behind this

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facebook post stems from the fact that

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many people believe

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that if they get a tax form like a 1099

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then this automatically means that that

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oh that number's got to go in your tax

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return they have to pay taxes on that

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amount however this is not the case 1099

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reporting is just that it's just

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reporting this legislation did not

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change the law pertaining to whether or

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not payments you received from paypal or

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venmo are taxable income

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it merely changed the reporting of them

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the government knows that unfortunately

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taxpayers are more likely to cheat on

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their taxes and not report all their

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income if the irs doesn't know about it

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this is why the form 1099 nec exists in

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general if a business pays an

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unincorporated service provider at least

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600 during the year they must issue that

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service provider a form 1099 and ec

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showing the amount they paid them there

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is a loophole of course with the current

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form 1099k reporting requirements if

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payment is made to an unincorporated

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service provider through a third-party

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settlement organization then technically

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the payment was not paid

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by the business to the service provider

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the business transferred funds to the

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third party settlement organization who

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then paid the service provider and now

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we're out of the form 1099 nec reporting

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world and into the form 1099 k reporting

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world which means that the reporting

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thresholds are much higher right more

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than twenty thousand dollars in payments

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more than 200 transactions during this

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year all this legislation did was close

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this loophole right to make sure the

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income earned by unincorporated service

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providers via third party settlement

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organizations such as paypal or venmo

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and others is being reported to the irs

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to discourage these service providers

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from under reporting their income on

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their tax return because the irs already

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knows about it so this new rule will

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affect those service providers who have

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underreported their income on their tax

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return because it was paid through a

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third-party settlement organization and

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they were under the reporting threshold

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to be issued a form 1099-k and the irs

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didn't know about it because there was

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no 1099k because the 1099k filing

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threshold was so high right both over 20

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000 payments and more than 200

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transactions but people who are using

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venmo or paypal in a non-business

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context really don't have any need to

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worry

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in fact the american rescue plan makes

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plain that reporting is not required on

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transactions that are not for goods and

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services so if you're just using paypal

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or venmo to be paid or reimbursed for a

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meal that you paid for but you and your

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friends are splitting or whatever it's

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personal use it's not in a business

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context for goods or services

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that's not tactical that was never

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taxable and this new rule doesn't make

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it taxable okay so going back to the

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facebook post right um it says you'll

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now be taxed on the twenty dollars you

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get for mowing a lawn and the forty

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dollars you get for selling something

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you never use on facebook marketplace

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well about that twenty dollars buddy

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that twenty dollars you earn for mowing

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a lawn that's taxable income that was

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always taxable income

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the fact that it was never reported on a

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1099k before is a different issue than

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whether it was taxable or not if you go

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out you perform a service that's income

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for you whether or not the 1099k even

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exists in the first place this new 1099k

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reporting threshold is simply making the

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irs aware of all these tax sheets who

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weren't reporting all the income they

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earned on their tax return as far as the

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furniture thing yeah if you sell your

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personal furniture and you have a gain

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on it that's a capital gain it's always

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been a capital gain at least as long as

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i've been alive but here's the thing

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buckaroo you probably paid maybe a

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thousand dollars for that couch 10 years

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ago and a bunch of babies spit up dog

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pee and wine stains later you're selling

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it for 50 bucks or 80 bucks you have a

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loss you do not have a gain

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and you can't take that loss because

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it's personal

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but you have nothing you have no taxable

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income there on that because you you

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bought this thing for more than you sold

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it for and that's typically the case for

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selling use stuff right so bottom line

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this new reporting requirement doesn't

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change whether something's income or not

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it's just a change to make more of these

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payments reportable to the irs

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folks if you like my tax content or

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