$600 Venmo / Cash App / PayPal Tax Rule Isn’t New

Did you hear, perhaps on TikTok or elsewhere, about a “new” tax on money you receive through apps like Venmo, Cash App, Zelle, and PayPal? Is it true that if you get more than $600, you’ll have to report it to the IRS as income?

The short answer is that if it’s not income, you won’t owe taxes on it.

If your friend pays you back for drinks, it’s not income so you won’t owe taxes. If you sold something on Craigslist for less than what you paid for it, then it’s not income and you won’t owe taxes on that either.

If you run a business, sell products or services, then the new reporting requirement shouldn’t affect you either because you’re supposed to report your income. The new provision simply adds a reporting requirement for these newer vendors.

Table of Contents
  1. Form 1099-K $600 Reporting Threshold
  2. Will You Owe Taxes?
  3. Why $600?
  4. Who Must Report Income?
  5. What You Need To Do Now

Form 1099-K $600 Reporting Threshold

The American Rescue Plan Act was signed into law by President Biden earlier this year. It was the same law that created $1,400 stimulus checks, a $3,600 child tax credit, and other benefits that helped Americans during the pandemic.

There was one provision, which takes into effect on 1/1/2022, that requires electronic payment processors (technically called “third-party settlement organizations”) to issue a Form 1099-K for people who receive more than $600. Previously, payment processors were only required to issue a Form 1099-K if someone received $20,000 in aggregate payments and 200 transactions. It’s now just one requirement – $600.

Payment apps like Venmo, Zelle, Cash App, and PayPal would fall under that category.

Will You Owe Taxes?

The Form 1099-K is simply reports of transactions (it’s actually a summary) that happen and, unlike a Form W-2, doesn’t mean you owe any taxes at all. This is the IRS’s description of the form:

A Form 1099-K includes the gross amount of all reportable payment transactions.  You will receive a Form 1099-K from each payment settlement entity from which you received payments in settlement of reportable payment transactions.  A reportable payment transaction is defined as a payment card transaction or a third party network transaction.

  • Payment card transaction means any transaction in which a payment card, or any account number or other identifying data associated with a payment card, is accepted as payment.  
  • Third party network transaction means any transaction that is settled through a third party payment network, but only after the total amount of such transactions exceeds $20,000 and the aggregate number of such transactions exceeds 200.

The gross amount of a reportable payment does not include any adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts or any other amounts. The dollar amount of each transaction is determined on the date of the transaction.

I copied the page as it looks right now (in October 2021) so it still shows the old thresholds of $20,000 and 200 – as you can see, the form doesn’t contain enough information to indicate liability.

More to the point, here’s what that same page says about what to do with that information:

It is important that your business books and records reflect your business income, including any amounts that may be reported on Form 1099-K. You must report on your income tax return all income you receive from your business. In most cases, your business income will be in the form of cash, checks, and debit/credit card payments. Business income is generally referred to as gross receipts on income tax returns. Therefore, you should consider the amounts shown on Form 1099-K, along with all other amounts received, when calculating gross receipts for your income tax return.

Why $600?

That’s the same threshold for another IRS form – Form 1099-MISC. That’s the form for miscellaneous income. If you, as a business, pay an independent contractor more than $600 a year then you need to issue a Form 1099-MISC.

In a quirk that I discovered a few years ago, you don’t have to fill out a Form 1099-MISC if you paid that contractor with a third party settlement organization (TSPO) because, presumably, those payments would be captured by that TPSO’s Form 1099-K. I suppose they lowered the threshold of the 1099-K so that it would capture those earning less than $20,000 but more than the $600 Form 1099-MISC threshold.

We were paying affiliates for $5 Meal Plan with PayPal and so could avoid the headache of collecting tax identification numbers and issuing a ton of Form 1099-MISCs.

Who Must Report Income?

If you generate a profit, you should report that income and pay taxes on it. In many cases, you won’t receive a form (let’s say you flip furniture for a profit and it’s all cash), but you’re still obligated to pay taxes.

If you run a business and collect revenue using those apps, you’ll have to document your income and expenses and pay taxes on the profits. You would’ve reported that income anyway – so the change in the reporting threshold doesn’t affect that.

What You Need To Do Now

But don’t be worried that this new form generates an automatic tax liability – it doesn’t.

You won’t have to automatically pay taxes on all the money you received through Venmo or the Cash App but this does increase the importance of putting in useful notes on transactions.

This is probably most important for large transactions like splitting a beach vacation rental or something similar. The IRS is unlikely to chase you for your half of lunch, unless it looks like you’ve gone to lunch a few thousand times last year. 🙂

If you do get a large transaction, just make sure you have documentation just in case.

We will have to see how the IRS uses the new information in the form. This could be a gentle nudge to people who are underpaying taxes. It could be that the IRS will now scrutinize every last penny. It’s hard to say but my bet is that the vast majority of these app users won’t be affected.

There’s been enough lead time on this new rule that tax preparation software packages will have this covered next year.

Other Posts You May Enjoy:

What Is the Net Investment Income Tax?

If you earn over $200,000 per year, you may be subject to the net investment income tax (NIIT), an additional tax levied on the investment income of taxpayers considered to be high income. This article will explain how the NIIT works, and give you some tips on how to reduce the potential expense.

What Happens if You Don’t File Your Taxes?

It’s common knowledge that you can be audited if you lie on your tax return, but what happens when you don’t pay your taxes? Will the IRS realize one missing tax return of the 195 million returns filed each year? While it’s possible to sneak below the radar, there can be stiff financial and legal penalties.

How Are Job Bonuses Taxed?

The annual bonus has to be one of the best workplace benefits. After all, you can do plenty of things with a few extra dollars in your pocket that you don’t have to work extra hours for. This guide covers how bonuses are taxed and how you might be able to minimize your tax bite.

About Jim Wang

Jim Wang is a forty-something father of four who is a frequent contributor to Forbes and Vanguard's Blog. He has also been fortunate to have appeared in the New York Times, Baltimore Sun, Entrepreneur, and Marketplace Money.

Jim has a B.S. in Computer Science and Economics from Carnegie Mellon University, an M.S. in Information Technology - Software Engineering from Carnegie Mellon University, as well as a Masters in Business Administration from Johns Hopkins University. His approach to personal finance is that of an engineer, breaking down complex subjects into bite-sized easily understood concepts that you can use in your daily life.

One of his favorite tools (here's my treasure chest of tools,, everything I use) is Personal Capital, which enables him to manage his finances in just 15-minutes each month. They also offer financial planning, such as a Retirement Planning Tool that can tell you if you're on track to retire when you want. It's free.

He is also diversifying his investment portfolio by adding a little bit of real estate. But not rental homes, because he doesn't want a second job, it's diversified small investments in a few commercial properties and farms in Illinois, Louisiana, and California through AcreTrader.

Recently, he's invested in a few pieces of art on Masterworks too.

>> Read more articles by Jim

Opinions expressed here are the author's alone, not those of any bank or financial institution. This content has not been reviewed, approved or otherwise endorsed by any of these entities.

As Seen In: