Paying a nanny in Venmo? Pay attention to new tax-reporting rule

Your clients with household help — such as nannies, housekeepers and senior caregivers — may be paying their workers through a mobile app like Venmo or PayPal. It’s quick and easy, but thanks to a new tax-reporting rule, it may no longer be a good idea.

What’s new this year under the American Rescue Plan Act (ARPA) passed in March 2021, paying for goods and services — like babysitting or childcare — through third-party settlement organizations (like Venmo, PayPal and Cash App) will be reported to the IRS if those transactions total $600 or more in a year.

The idea behind the requirement is to make more transactions reportable so it is harder for businesses to underreport their taxable income by using apps to get around banks and other traditional forms of reporting income.