Early this year, Benson Gitau, owner of Houston appliance reseller Vendapp, noticed that his suppliers were no longer accepting payments through Venmo, PayPal or Cash App. “They’d just say, ‘I prefer Zelle,’” he says. The share of his suppliers using Zelle jumped to 60% from 15% in a few weeks. “A couple of them talked about why. It’s because, at the end of the day, with Zelle or cash, they decide what to show to the IRS.”
He’s referring to an IRS rule change that came into effect on Jan. 1, 2022, requiring third-party payment processors such as Venmo and PayPal to issue 1099-K forms to any users who receive more than $600 in payments via their apps and also file them directly with the IRS. Previously, Venmo and other apps issued 1099-Ks only for customers with gross payments exceeding $20,000 who’d made more than 200 such transactions. But small businesses nationwide have found a loophole: Zelle. Zelle says the new rule doesn’t apply to it, a bank-to-bank payment service, because it’s a network that doesn’t hold funds.