Fact Check: Clarifying the $600 Tax Rule in the American Rescue Plan Act (ARPA)

Jan 19

While the American Rescue Plan Act does introduce new tax laws, including for peer-to-peer payment apps like Venmo, the “$600 Tax Rule” mainly affects small businesses, independent contractors, and individuals with side hustles who use the apps for transactions.

Starting January 1st, 2022, peer-to-peer payment apps such as Venmo and Paypal will need to report users’ business payments over $600 per calendar year to the IRS (Business Insider). Apps will also need to give business owners a Form 1099-K to fill out for the 2022 tax cycle, which breaks down commercial income received through the app (Business Insider).

While this is a common misconception, the new tax law will not affect individuals sending gifts, reimbursements, or making other personal transactions on the apps (Business Insider, CNBC). The new law will only affect businesses and transactions related to goods and services (Investopedia). In other words, you do not need to let the IRS know every time your friends pay you back for dinner or other things through Venmo.

The “$600 Tax Rule” is meant to minimize income tax evasion and make it easier for merchants to report income (Business Insider). It will also eliminate the 200 transaction threshold and reduce the gross-payments threshold for businesses from $20,000 to $600, hence the “$600 Tax Rule” name (Investopedia).