Millions of small businesses in the US accept digital payments and a new tax rule in the American Rescue Plan Act of 2021 impacts them beginning January 1, 2022.

Small businesses typically accept payments from services like PayPal, Venmo, Zelle, Cash App, or third-party settlement providers accepting credit cards on their behalf and putting money into business banking accounts. When payments have been made for goods and services in the past, it was up to the business owner to make certain that income was reported to the IRS. Now, your payment service is required to report any amount over $600 in total during the course of the year.

Those amounts obviously should have been reported anyway, but realistically, small business owners accepting a large number of small payments don’t always remember to document and track every transaction. This means continual monitoring, entry, processing, and record keeping should be a priority. The IRS will be reported to regardless and diligence in bookkeeping lessens the risk of negative or unexpected tax implications. This also means an additional 1099-K from each payment platform for businesses to file when completing their tax return. The amounts shown on these 1099-Ks must be considered when calculating gross receipts for tax returns and will be cross-referenced by the IRS.

Small businesses often use these platforms for ease of use and convenience and this change is potentially disruptive without proper management of accounting functions. More regulation means more work for small business owners and staff already stretched thin.

With our daily transaction processing, real-time reporting, and monthly reviews, compliance with this new law is made easier to manage, or to be managed for you.