close video FOX Business Flash top headlines for December 2

Check out what’s clicking on FoxBusiness.com

The Internal Revenue Service issued a reminder this week for taxpayers to prepare to report transactions of at least $600 that are received through payment apps like Venmo, PayPal and Cash App.

In an explainer posted online, the IRS warned small business owners about the $600 threshold for receiving Form 1099-K for third-party payments exceeding $600. 

Beginning this year, third-party payment processors will be required to report a user's business transactions to the IRS if they exceed $600 for the year. The payment apps were previously required to send users Form 1099-K if their gross income exceeded $20,000 or they had 200 separate transactions within a calendar year.

Democrats made the change in March 2021, when they passed the American Rescue Plan without any Republican votes. Now, a single transaction over $600 will trigger the form. The change is intended to crack down on Americans evading taxes by not reporting the full extent of their gross income. However, critics say that it amounts to government overreach at its worst and that it could ultimately hurt small businesses.

DEMOCRATS SLAM 'DANGEROUS' FED RATE HIKES, WARNING OF WIDESPREAD JOB LOSSES

IRS headquarters in Washington, D.C. (Samuel Corum/Bloomberg / Getty Images)

The new rule only applies to payments received for goods and services transactions, meaning that using Venmo or PayPal to send a loved one a gift, pay your roommate rent, or reimburse a friend for dinner will be excluded. Also excluded is anyone who receives money from selling a personal item at a loss; for example, if you purchased a couch for $300 and sold it for $250, the amount is not taxable. 

"This doesn't include things like paying your family or friends back using PayPal or Venmo for dinner, gifts, shared trips," PayPal previously said.

To be clear, business owners are already required to report that income to the IRS. The new rule simply means that the IRS will figure out what business owners earned on the cash apps, regardless of what that individual actually reports on their 1099-K, because it broadens the scope of the threshold. 

Form 1099-K is used to report goods and services payments received by a business or individual in the calendar year, but there are certain exclusions from gross income that are therefore not subject to income tax, including amounts from selling personal items at a loss, amounts sent as reimbursements and amounts sent as gifts.

The Venmo mobile payment service logo seen displayed on a smartphone. (Photo Illustration by Igor Golovniov/SOPA Images/LightRocket via Getty Images) ((Photo Illustration by Igor Golovniov/SOPA Images/LightRocket via Getty Images) / Getty Images)

"For the 2022 tax year, you should consider the amounts shown on your Form 1099-K when calculating gross receipts for your income tax return," PayPal said in a Q&A on its website. "The IRS will be able to cross-reference both our report and yours."

The cash apps will now be required to send users who meet the newest requirements Form 1099-K for transactions made electronically or by mail. 

GET FOX BUSINESS ON THE GO BY CLICKING HERE

The apps may request additional information from users in the near future in order to properly report transactions, and users may be asked to provide their Employer Identification Number (EIN), Individual Tax Identification Number (ITIN) or Social Security Number (SSN) if it's not already on file.