New IRS ‘$600 Rule’ for Side Hustles: Essential Details for PayPal, Venmo, and Cash App Users
The Internal Revenue Service (IRS) has announced a deferral of the enforcement of the “$600 rule” until the following year. This postponement allows affected taxpayers an additional year to prepare for tax forms triggered by the newly reduced reporting threshold, offering some relief to those utilizing third-party payment platforms.
The essence of the “$600 rule” is that individuals using platforms like PayPal, Venmo, or Cash App for business transactions must report payments exceeding $600. This constitutes a departure from the previous rule, raising concerns about its impact on small businesses and side hustles.
The previous reporting threshold, under the “old rule,” required earnings of at least $20,000 or 200 or more transactions, whichever came first. This threshold was initially set to expire at the end of the previous year, but the implementation has been extended until December 31, 2023, providing affected parties with more time to adapt.
The new “$600 rule” lowers the reporting threshold, requiring a 1099-K for payments exceeding $600. This change is expected to affect a broader range of individuals engaged in side hustles and small businesses, prompting the IRS to delay enforcement due to concerns about unexpected impacts and the need for clarity in distinguishing personal and business payments.
Prepare for Future $600 Reporting Impact
For the tax year 2022, taxpayers will continue to adhere to the “old rule,” receiving a 1099-K form if they earned at least $20,000 or conducted a minimum of 200 transactions. The implementation of tax forms triggered by the “$600 rule” will be effective in the subsequent year.
It’s essential to note that the “$600 rule” primarily targets individuals operating side hustles or small businesses through third-party payment platforms. Personal transactions, such as transferring money to friends for non-business purposes, are not affected. However, all individuals, regardless of whether they reach the threshold, are obligated to report taxable income.
As a general recommendation, those earning income subject to taxation should set aside approximately 20% for tax purposes. This precaution ensures financial preparedness and avoids last-minute scrambling to cover tax obligations.
Famous investor Warren Buffett has provided sound financial advice, advising against squandering money on things that do not appreciate in value. He places a heavy emphasis on the importance of prioritizing investments in terms of education, the development of skills, and the establishment of a solid financial basis for long-term success.
Lastly, the article touches on the potential changes in tax legislation, discussing the Tax Cuts and Jobs Act’s (TCJA) impact since 2018. It underscores the temporary nature of these alterations, set to expire after 2025 unless Congress takes action to make them permanent. This highlights the importance of staying informed about potential changes that could affect individual financial situations.
