A recent tax law change by this edition of Congress now requires transaction reporting to the IRS for anyone receiving more than $600in payments through digital payment tools like PayPal, Venmo, and CashApp. It also impacts anyone using transaction platforms to buy or sell tickets for sporting events and concerts. Here is what you need to know.

What is happening now

They need your Social Security number. If you use digital payment platforms you will now need to provide your Social Security number and a valid name and address to accept digital payments or to buy and sell tickets online.

The IRS will know. Most of these transactions for those receiving funds will now have this activity reported to the IRS if the total for the year exceeds $600. This is true even if you lose money on the transaction. It will be done using Form 1099-K and will be issued to you in January.

Your taxes may be more complicated. If the IRS considers the transaction a business transaction, you will now need to report the transaction on your 2022 tax return, even for casual transactions that lose money. This is often the case when selling event tickets for a loss or taking digital payments at a garage sale.

You may receive many1099-Ks. You can expect to receive a separate1099-K from every platform you use where you exceed the $600 threshold.

The IRS watchdog approach. Prior to 2022, the reporting threshold was $20,000 AND more than 200 transactions. But with the perceived under-reporting of income by those in the gig economy, the transaction threshold was eliminated and the dollar threshold was lowered to $600. Now the IRS will use their computer auditing to compare your 1099-Ks with what you report on your tax return and audit you if they do not match.

What to do now

Coach your friends. Whenever you exchange money with friends in a digital format like Venmo, have them mark the transaction as non-business. Each application will handle this differently, but it is critical you do this to avoid getting a 1099-K in error.

Use cash or check. When receiving payments from friends, if there is potential for error ask for a check or cash. This will avoid the 1099-Kreporting mess.

Split payments. When splitting a bill at a restaurant, do not have one person pay and then get reimbursement. Instead, ask the restaurant to split the bill and everyone pay their share. You can make this easy on your server if you are willing to split the bill evenly.

Understand the problem. When receiving a digital payment, you are relying on the person paying you to code the transaction correctly. Unfortunately, you cannot make them do it correctly, so you now need to keep track of digital money received, who it was from, and for what purpose.

True business transactions. For those of you in the gig economy, you have a different problem. Many reporting platforms are inconsistent on reporting. Some will report your income twice, once on a 1099-Kand again on another tax form (1099-MISC or 1099-NEC). You must actively monitor this information. Plus, you need to know whether the amount reported are gross proceeds (required) or whether they netted out their fees.

Casual users of seller platforms are now in business. Infrequent users of places like E-Bay, Etsy and Amazon are now in business when payments received are more than $600. Be prepared to create a business tax return on Schedule C of your Form 1040.

This seemingly simple change in the tax code is having a wide-reaching impact. It will further complicate filing taxes AND processing taxes for the IRS. Given the level of public outcry, a roll back of this new rule is possible, but given the nature of Congress, do not plan on it.

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