In a shocking announcement today, the IRS has decided to delay the implementation of a controversial new rule that would have required payment processors like PayPal, Venmo, and CashApp to issue 1099 tax forms for business transactions over $600. This rule was originally slated to go into effect on January 1, 2023.
However, after receiving extensive feedback from tax professionals and taxpayers expressing confusion—the IRS has postponed the rule until 2024. Over 44 million Americans were estimated to receive a 1099 form under the lowered $600 threshold.
Zelle Not Included
One source of confusion is that Zelle, owned by major banks, would NOT have been subject to the reporting rule. Since Zelle functions through bank accounts, it avoids the reporting requirement that applies specifically to third-party payment settlement entities. Nevertheless, many users mistakenly believed Zelle would be included. This misunderstanding contributed to the pushback.
Payment Processors Impacted
The payment processors impacted by this rule do include major companies like:
New $5,000 Rule Starts in 2024
While not eliminated entirely, the rule will now be scaled back significantly when implemented in 2024. Instead of the original $600 threshold, payment processors will only be required to report business transactions exceeding $5,000.
By increasing the minimum reporting requirement five-fold, the updated rule alleviates expansive oversight into personal transactions that had caused an uproar. The higher $5,000 threshold will also ease the compliance burden on companies like Venmo and CashApp.