SILVER SPRING, Md. - Millions of small business owners who rely on payment apps like Venmo, PayPal, and Cash App could be subject to a new tax law that just took effect in January.
Beginning this year, third-party payment processors will be required to report a user's business transactions to the IRS if they exceed $600 for the year. The payment apps were previously required to send users Form 1099-K if their gross income exceeded $20,000, or they had 200 separate transactions within a calendar year.
Although the change took effect in the new year, small businesses do not need to take it into consideration until the 2022 tax-filing season begins next year.
Ramakrishnan Ganesan, an accountant, tells FOX 5 DC the apps will keep track of the applicable transactions, and they’ll be the ones to send business owners the tax form.
"The app, they have all the transactions there," she said. "All they have to do is, at the end of the year, push a button and say how much money they received.
Yinka Ogunsunlade is a lawyer and E-Commerce business owner. His company, Fashionably Legal, is based in Silver Spring.
Ogunsunlade says there are a lot of sellers who fall in the range between $600 and $20,000, and they are not happy about this.
"We have small-time sellers and sellers who just do this as a hobby," he explained. "These are people who are not really using this as a business but just a way to make some extra cash, and right now they would be forced with this new law to file taxes as a profit-making business and keep track of their sales, and keep track of how much they purchase items for – things they wouldn’t ordinarily keep track of during this process."
The new rule only applies to payments received for goods and services transactions, meaning that using Venmo or PayPal to send a loved one a gift, pay your roommate rent, or reimburse a friend for dinner will be excluded. Also excluded is anyone who receives money from selling a personal item at a loss; for example, if you purchased a couch for $300 and sold it for $250, the amount is not taxable.
"This doesn't include things like paying your family or friends back using PayPal or Venmo for dinner, gifts, shared trips," PayPal said in a November statement.
FOX News contributed to this report.