New Tax Laws 2022: Getting Paid on Venmo or Cash App? This new tax rule may apply to you
The new rule, which went into effect Jan. 1, imposes no additional tax on payment app users. But it makes it harder for someone to evade existing taxes owed if paid through an app for business transactions.
Payment application vendors must now issue you and the IRS a Form 1099-K on your business transactions if, combined, they total more than $600 per year. Previously, they only needed to do this if you had more than 200 business transactions per year totaling at least $20,000.
A business transaction is defined as payment for a good or service, including tips. It therefore does not include personal transactions, such as being reimbursed by a friend for a dinner or receiving money to pay for a group gift.
The new requirement – included in the US bailout, which was enacted last year – will apply to the 2022 tax year and beyond. This means that the first 1099-Ks issued under the new lower threshold will not be released until early 2023.
But pay attention to your app provider’s communications about the change and what, if anything, you’ll need to do, such as providing more information to the company or better identifying the nature of your transactions.
“[Payment app providers] leverage consumer prompts and interfaces to help consumers categorize reportable versus unreportable transactions on the front-end, and then [providing] educational materials, like FAQs, to help the consumer understand the details of the new reporting requirements if they receive a 1099,” said Scott Talbott, senior vice president of government relations at the Electronic Transactions Association.
Venmo, for example, has an updated FAQ that notes that “customers may receive an in-app notification or email… asking to confirm the information they use when filing their taxes. … By providing this information, customers will be able to continue using their Venmo account to seamlessly accept payments for goods and services without any hassle in 2022 and beyond.”
When going to send a payment to someone, Venmo users should see a toggle at the bottom of their screen that allows them to indicate whether the money sent is for the purchase of goods or services.
PayPal, owner of Venmo, is offering similar advice to users of its app, a company spokesperson said.
Square’s Cash App includes a partially updated page for users with Cash App for Business accounts. The company notes in it that “this new $600 reporting requirement does not apply to personal Cash App accounts. Instead, it only applies to Cash for Business accounts and only applies to payments received in 2022”.
CashApp did not respond to requests for comment on how it will handle reporting for accounts where users might mix personal and potentially reportable business transactions.
As for anyone who is used to earning a bit of cash by occasionally renting out their place on Airbnb or selling handmade goods on Etsy, the new $600 reporting threshold will affect you as well. These online platforms are likely to issue you and the IRS a 1099-K as well.
But anyone using the Zelle network — which sends money directly between U.S. bank accounts — won’t receive 1099-Ks for business transactions because Zelle’s parent company, Early Warning Systems, said Zelle was exempt from the declaration rule and published an FAQ. About that.
“The law requiring the issuance of 1099-K forms applies to third-party payment networks that handle the settlement of funds. Payments between friends and family and eligible small businesses sent through the Zelle network are not subject to this law because Zelle facilitates messaging between financial institutions, but does not hold accounts or handle the settlement of funds,” Early Warning said in an emailed statement.
But here’s the key thing to keep in mind under all circumstances: whether or not your payment app or other electronic payment platform you use sends you a 1099-K, you should always keep good records of your business transactions and pay taxes. you owe on your revenue-generating sales of a good or service, including tips.
And if you get a 1099-K from a third-party payment provider that’s incorrect—perhaps because the old furniture you sold when you moved cost less than you paid—it’s up to you to document the IRS why the money you received is not taxable income.
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