Since January 1, 2022, mobile payment apps like Venmo, Paypal, and Cashapp required users to file a 1099-K form that is used to report business transactions. This change to an Internal Revenue Service (IRS) tax-reporting rule will not affect payments between friends and families but will make it harder for business owners to evade existing taxes. Prior to the January 1 rule, business owners only filed taxes if they had passed the IRS reporting threshold of $20,000 and had participated in more than 200 business transactions. Now, with the rule change, any business making more than $600 will need to file a tax return. 

This rule change will have a huge impact on small-business owners, people renting out their houses, individuals selling crypto-currency, or anyone making money through a side hustle. It could potentially send individuals to a new taxable income bracket, which, in turn, might increase their tax rate by 10 percent.

Surprisingly, this change will not affect payments to Massachusetts residents. In 2021, Massachusetts was one of only four states that already required business owners to file tax returns on Venmo if they met the $600 threshold, regardless of the number of transactions. 

Maia Monahan ’23, who works at Tomo’s Tackle—a local small business in Salem, MA, that has an online store that ships orders to customers worldwide so they accept Paypal payments both online and in-store—says, “I doubt that the new law change will have any effect on how payments are received at the business I work at. Paypal is a convenient way for us to receive payment both in-store and from our online customers, so I can't imagine the new law affecting it at all.” 

Paypal, which owns Venmo, also enlisted similar guidelines for tax returns. Cashapp representatives have said that the app is only issuing users with a business account a 1099-K, and it does not apply to users handling personal transactions; Cashapp has not specified how they will handle users who mix personal and business transactions. 

One mobile payment company that this rule change will have no impact on is the Zelle network. The issuance of 1099-K forms only applies to third-party payment networks, whereas Zelle directly monitors payments from US banks to personal accounts. 

It is interesting how a rule change can have such a ripple effect on both businesses and consumers. Nonetheless, it will be interesting to see how this rule change plays out.