The American Rescue Plan Act was passed by Congress in early 2021 to alleviate economic pressures from the COVID-19 pandemic. As a part of the Act, Congress amended Section 6050W of the Internal Revenue Code (IRC) reducing the reportable payment amount that requires third-party payment companies to report the income of their users and issue a 1099-K.
Threshold lowered from $20,000 to $600
Before the Act was passed by Congress last year, third-party payment companies were only required to report the income of their users if the user received more than $20,000 in payments in a minimum of 200 transactions. While no new tax is being imposed as part of these changes, small businesses and individuals using these apps as part of their business will likely see a tax increase due to the increase in reportable income. Personal transactions, however, are not included, such as being reimbursed by friends or family or collecting money to buy a gift for someone.
Zelle® claims an exception
The new reporting requirement also applies to Amazon, Airbnb, Etsy, eBay, and any other company that is considered a “third-party settlement organization” under the IRC. However, the Zelle® Network has stated that it will not be issuing 1099-Ks. Zelle® reports that they are exempt from the reporting rule and published a series of FAQ’s on the matter. Zelle® explains that they facilitate messaging between financial institutions, but do not hold accounts or handle settlement of funds and therefore do not consider themselves a “third-party settlement organization.”
If you, as a small business, do receive a 1099-K from a third-party payment company that you believe was not reportable or issued in error, it will be your responsibility to resolve the problem with the issuer and ensure the amount reported to the IRS is correct. If you have any tax questions about your individual situation, please consult a legal or tax professional.