PHOENIX (3TV/CBS 5) -- The IRS wants more information about transactions on electronic payment services like Zelle, Venmo, and PayPal.
Tax reporting changes are going into effect in 2022 for people who use third-party apps to get paid. Beginning next year, companies must report users' business transactions if they total more than $600 annually, a sharp increase from the current $20,000 threshold.
It is an effort to make sure people are accurately reporting their income. It only applies to money received for goods and services.
Tom Wheelwright, an author and tax expert, says if you are selling goods and services, this shouldn't change what you report on your taxes, just some of the paperwork that is involved.
"Really, all that’s happening is there was a $20,000 threshold for a year and now it’s coming all the way down to $600," Wheelwright explained. "That means that a lot more people are going to have to give either their social security number or their Employer Identification Number (EIN) to these third party collection apps so that they can report on a 1099-K."
Some companies are already collecting this information from users. "Just know they will ask for it. You probably won’t get paid unless they get it, because there are pretty severe penalties if they don’t report it," Wheelwright said. "I recommend that you get an employer identification number instead of using your social security number." You can apply for an EIN or an Individual Tax Identification Number (ITIN) through the IRS.
The changes do not apply to peer-to-peer transactions for things like splitting dinner with friends or sending a cash gift. PayPal and Venmo already have tools on their apps that allow users to select a category for each transaction and tag those that are for goods and services.