Buying More Time for Forms 1099

Late last year, the IRS announced another delay in a rule requiring cashless money transfer apps like PayPal, Venmo, and Cash App to send tax documentation on user’s earnings. With the increasing use of these alternative payment systems at farmers’ markets and online market places, farmers should prepare for the rule to take effect in the 2024 tax year…if there are no further delays.

In a world where friends no longer pay each other back with cold, hard cash, expecting customers to hand over a $20 bill at the farmers’ market seems increasingly antiquated. Many farmers successfully avoided credit cards owing to the cost of card readers and need for a wireless or telephone line. But now, with Venmo, PayPal, Cash App and more, it’s harder and harder for farmers to resist. The fees are still there, but the convenience of tapping a few buttons on a smartphone outweighs the inconvenience. New data also suggests increased customer spending more than makes up for the fees charged, an experience echoed by many farmers who also appreciate not having to make as much change.

To the IRS, income is income no matter how the money transfers hand. Income received over a cash app must still be accounted for as the business prepares its tax filing. To facilitate accountability, the IRS implemented a rule requiring Venmo and the like (called third-party settlement organizations or TPSOs) to send Forms 1099-K to users who had transactions totaling $600 or more. According to the IRS’ numbers, this would result in 44 million Forms 1099-K landing on users’ proverbial doorsteps.

But what about the farmer with a teenager who pays Mom back for gas money using the same Venmo account that she sells products through? True enough, the farmer doesn’t need to include their child’s reimbursement on the farm’s books. Out of concern that it will take more time to distinguish business from non-business transactions, the IRS has delayed the full implementation of this rule. Beginning in the 2023 tax year (which means taxes filed in early 2024 for most users) the TPSOs will send Forms 1099-K for users with transactions totaling $5,000 or more. This dollar value will then drop to $600 as communication and understanding of this rule increases.

 Farmers have more time to get ready. Some farmers may want to use that time to separate personal from business accounts. Other farmers will want to spruce up their bookkeeping so they’re ready to manage the additional income reporting accurately. Either way, let’s hope payment apps keep money flowing the farmer’s way!