Gig workers and those with small side hustles often use electronic payment systems when selling their creations at a craft show or providing basic services to local customers. The reporting requirements for people with alternate streams of income or small businesses in the Atlanta area have recently changed.
The requirements for IRS Form 1099-K have shifted, imposing more obligations on those who received payment through PayPal or Venmo. Taxpayers concerned about ensuring compliance with federal income tax regulations may need to review their recent financial records with a tax attorney to better ensure that they make appropriate disclosures and fulfill all of their income tax obligations.
When is PayPal and Venmo revenue reporting mandatory?
Small business owners, self-employed professionals and those with side hustles may need to report any income received through third-party payment processors once their operations reach a specific threshold. The numbers that matter are the gross transactions, not net revenue. Even fees and refunds can factor into the calculations, making tax return adjustments necessary.
Typically, credit card companies, payment processors and online marketplaces provide the 1099-K to each business or professional using their services. Even those who did not receive 1099-Ks are still responsible for reporting their income if it reaches the threshold established under the current law.
Currently, any professional who receives $20,000 or more through Venmo or PayPal in a single year must report those funds as income for their Atlanta-area business. Alternatively, anyone with 200 or more transactions in a single year is subject to the same requirements.
When an individual user’s total payments exceed $20,000 or 200 transactions in a year, the payment processors may need to withhold backup funds to ensure compliance with federal income tax requirements. The tax rate that typically applies is 24%.
Withholding rules take effect as soon as the 200 transaction or the gross revenue reaches $20,000 and continue for the rest of the calendar year. Especially in scenarios where Venmo, PayPal and other service providers fail to adhere to withholding requirements, gig workers and small business owners may need to retain a savings cushion to ensure that they can meet their federal income tax obligations when filing their annual return.
Those concerned about compliance may benefit from working with an experienced Atlanta-area tax law attorney. Having assistance when filing a federal income tax return reduces the risk of 1099-K errors that could generate costly penalties.