AFFILIATE MGMT 101

What to Know about PayPal and the $600 Tax Rule for 2023

PayPal 

It’s simple - there is NO $600 reporting requirement for Third-Party Payment Apps for 2023

As a Store Owner, you are likely paying your affiliates via PayPal or Venmo, and that means you’ve definitely heard whispers about the $600 Tax Rule. But before I go on and educate you a bit (if you don’t already know of course), let me cut to the chase. 

There is no $600 reporting requirement from the third-party payments apps for 2023. The IRS pushed it off.

So what is the $600 Tax Rule? 

Well, in 2022, under the American Rescue Plan, the IRS announced that they would begin requiring third party payment apps such as PayPal, Venmo, Zelle, and Cash App to report all transactions over $600 and initially stated that it would kick off for the 2023 tax year.

This means that all affiliates that received payment via a third-party app for “Goods & Services” that equal $600 or more will be reported to the IRS. Meaning that Affiliate Programs must ensure they are properly tracking all their affiliates earning more than $600 because the IRS, like Santa, is checking their list twice!

Why Didn’t the New Tax Rule Kick Off in 2023

The IRS hit the pause button on the $600 reporting rule for 2023 because simply said - it’s just too complicated to execute for now. 

For 2023, the IRS is sticking to the status quo and third party payment processors will only report commercial transactions to the IRS and send tax payers a 1099-K only if they're rolling in over $20,000 across 200 commercial transactions. This was how it was always reported prior to the new rule and will continue as such for the 2023 tax year. 

As for the 2024 tax year, the IRS will be working it's way down to the $600 threshold by sending 1099-Ks to tax payers making $5,000 or more. By the 2025 tax year, the $600 threshold rule should be in place.

What does this mean for your Affiliate Program?

As an Affiliate Program, you must still keep track of how much you are paying your affiliates and send them the proper tax documents. First off, you should be collecting a W-9 for all your US-based affiliates earning money and collecting a W8-BEN from all your affiliates based outside the US.

During tax season, we recommend sending out a 1099-NEC for US-based affiliates who earned $600 or more within the tax year and to provide a 1042-S to Affiliates based outside the US who earned any income. These documents must be sent out by January 31st of the reporting year.

Depending on the affiliate platform you are using, you may have your taxes covered as a technology feature. But as the Store Owner, it is up to you to ensure the affiliate platform has that feature and that you too have communicated the proper tax forms with your affiliates.

Whether or not payment processors will be sending 1099-Ks, you always want to own your communications with your own affiliates.

But as always - we are not tax experts, so please consult a tax professional and ensure you have your affiliate program and it's taxes locked down for the coming year!

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