Peer-to-Peer (P2P) mobile payment apps such as PayPal, Venmo and CashApp have become increasingly popular with both individuals and small businesses to transfer money quickly and conveniently. If you are using these payment apps or other third-party credit/debit card processors for your business, however, there are some new tax implications that you need to be aware of.
New reporting requirements
Through 2021, payment processing platforms were required to report information to the IRS for sellers who received over $20,000 in gross payment volume AND over 200 separate payments in a calendar year.
However, starting in January of 2022, that threshold has been dramatically lowered as part of changes implemented from the American Rescue Plan. Now, payment platform customers must report to the IRS if they receive over $600 in gross payments (regardless of the number of transactions).
If your business crosses this threshold, the payment platform you use will send Form 1099-K to you and the IRS the following year. The lowering of this threshold means that many more small businesses, self-employed people, gig workers, freelancers and independent contractors will receive this form than in years past.
What is the 1099-K?
IRS Form 1099-K was created to ensure that individuals and businesses report all their income for tax purposes. Credit card companies, third party-processors, and P2P mobile payment apps all must report the payment transactions they process for businesses. If your business accepts these kinds of payments, you will receive a 1099-K form at the end of the year from each payment processor you use (assuming you surpass the $600 threshold). This form will summarize all your sales transactions through their platform.
The IRS will receive a copy of your 1099-Ks, and you will need to use the information on those forms to gather your total business income which you’ll report on your business taxes.
It’s important to note that even if you don’t receive a 1099-K, you are still required to report all the payments your business receives to reflect the actual amount of money the business has earned.
Keep your business account separate
Because mobile P2P payment apps or card readers can easily be used for both business and individual use, it’s important to open a separate account for your business, so, for example, if your roommate transfers money to you to pay their share of the rent, that isn’t counted as taxable business income.
Does the new rule affect Zelle?
Zelle operates differently than other mobile payment apps, so the new IRS rule does not apply to them. That means, if you use Zelle for business purposes, Zelle will not report any transactions made on its network – even if you exceed the $600 threshold – and they will not send you a 1099-K. This is because Zelle sends funds directly from the payer’s bank account into the payee’s bank account, while services like PayPal allow users to keep funds within the platform itself.
Remember – if the payments received on your Zelle account are for your business and taxable, it is still your responsibility to report those payments to the IRS.
Valley and Zelle
Valley is happy to accept Zelle, providing a safe and easy payment option to our consumers through our mobile banking app and online banking. Once enrolled, sending money is as easy as adding a trusted recipient’s email address or US mobile phone number, entering the dollar amount you want to transfer, and hitting “Send.” And it doesn’t matter where your recipients bank. You can also easily request payment via Zelle.
If you have a Valley consumer checking account and are interested in learning more about Zelle, check out our FAQs and Enroll Now. If you have any issues accessing your Zelle account, contact our Customer Care support team at 800-522-4100 and we’ll be happy to help.
Make payment processing easier than ever
Finally, at Valley Bank, we’re always looking for ways to make our customers’ lives easier and more convenient. Let us help you with your payment processing needs. We can provide your business with a comprehensive suite of merchant payment solutions called Clover – cutting edge hardware, cloud-based software, and state-of-the-art security all in one! You’ll have a dedicated bank representative to walk you through the process, a wide variety of apps to choose from, and built-in fraud protection. And you’ll be able to accept a wider range of payment methods – convenience your customers will appreciate.
Learn more about our Merchant Services and reach out to one of our friendly Valley representatives today to get started.
