What Cash App Users Need to Know About the New Tax Form Proposals

Starting January 1, if a person collects more than $600 in business transactions through cash apps like Venmo, the user must report that income to the IRS.

STORY UPDATE: As of January 1, the reporting threshold for business transactions processed through all treasury apps is $600. An IRS FAQ is available here.

As of January 1, 2022, people who use cash apps such as Venmo, PayPal, and Cash App are required to report income totaling more than $600 to the Internal Revenue Service.

VERIFY previously reported the change in September, when social media users criticized the IRS and the Biden administration for the change, with some saying a new tax would be imposed on users who use these apps to process payments.

After the change, a review proposal was introduced to increase the reporting threshold to $10,000 for income generated through the cash app, but this proposal was never enacted.

THE QUESTION

VERIFY viewer Tina asked, “Next year, will I get a 1099 for using money apps like Venmo or Zelle after $600 worth of money was sent to me?”

THE SOURCES

THE ANSWER

Yes, you will receive a Form 1099-K next year if you receive more than $600 on an application. This only applies to income that would normally be reported to the IRS anyway. Current tax law requires everyone to pay taxes on income over $600, regardless of source.

Taxes don’t apply to friends and family transactions, such as rent payments or dinner reimbursements.

WHAT WE FOUND

The American Rescue Plan Act of 2021 changes the IRS reporting requirement from $20,000 in cumulative payments and 200 transactions to a threshold of $600 in cumulative payments, with no minimum transaction number. The new rule went into effect on January 1, 2022, and the first 1099-K forms for people who meet the lower $600 threshold will be filed in 2023.

These reports using third-party apps, such as Cash App, Venmo, or PayPal, only apply to goods and services, not personal payments, such as if someone reimbursed you for dinner.

An IRS explainer on third-party transactions can be found here.

David Super, professor of tax law at Georgetown University, told VERIFY in an email: “This proposal does not change what is taxable or deductible. It simply aims to obtain more honest reports on income received and deductible expenses incurred.

“If one receives money from a friend or family member as a gift or as a refund, the effect is likely to be the same: no accounting income. If, on the other hand, one uses the cash app to receive proceeds from a business, those business receipts should be reported as such,” Super said.

Steve Rosenthal, senior fellow at the Urban-Brookings Tax Policy Center at the Urban Institute, told VERIFY that Congress has expanded reporting for the gig economy for payments made for services using cash applications. For people using these apps, they would receive an information report and 1099-K to report any earned income.

“Venmo, for example, should give you an information report and tell the IRS, likewise, that you have received a substantial amount of receipts, as well as engage in a substantial number of transactions. Next year, Congress lowered the threshold to $600. So many more people will receive information reports from Venmo and other cash facilities,” Rosenthal said.

“It doesn’t mean just because you receive a report of information that you have taxable income, you can’t have gains on, for example, a transaction that was a sale, or maybe just a personal transaction and not in itself a revenue-generating transaction,” he added. “As my wife often gets Venmo payments from some of her girlfriends for groceries, and she makes those payments. And so it wouldn’t result in any income. And even if my wife received such a form, she might ignore it.

He said the IRS controls only a tiny fraction of taxpayers, and that will continue. But if someone is getting a steady stream of money through a cash app, and it appears to be for retail or income, then “it will make that unreported business income more visible to the public.” ‘IRS’.

“The main hope is that companies will voluntarily report their income accurately once their receipts are more openly documented,” he said.

More CHECK: Yes, scammers try to impersonate AT&T and many other companies in text messages

The VERIFY team strives to separate fact from fiction so you can understand what’s right and wrong. Please consider subscribing to our daily newsletter, SMS alerts and our YouTube channel. You can also follow us on Snapchat, Twitter, Instagram, Facebook and TikTok. Learn more “

Follow us

Want something VERIFIED?

Text: 202-410-8808



Source link

Comments are closed.