Getting paid on Venmo or Cash App? This new tax rule might apply to you
A business transaction is defined as payment for a good or service, including tips. So it does not include personal transactions, such as being reimbursed by a friend for dinner or receiving money to pay for a group gift.
The new requirement — included in the American Rescue Plan, which was signed into law last year — will apply to tax year 2022 and beyond. That means the first 1099-Ks issued under the new, lower threshold won’t go out until early 2023.
But look out for communications from your app provider about the change and what, if anything, you’ll need to do, such as provide more information to the company or better identify the nature of your transactions.
“[Payment app providers] are relying on consumer prompts and interfaces to help consumers classify the reportable versus non-reportable transactions on the front end, and then [providing] educational pieces, 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.
When they go to send a payment to someone, Venmo users should see a toggle at the bottom of their screen that lets them indicate whether the money being sent is for a purchase of goods or services.
CashApp has not replied to requests for comment on how it will handle reporting for accounts in which users might mix personal and potentially reportable business transactions.
“The law requiring the issuance of forms 1099-K 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 settlement of funds,” Early Warning said in an emailed statement.
But here is the key thing to keep in mind in every circumstance: Whether or not your payment app or any other electronic payment platform you use issues a 1099-K to you, you still must keep good records of your business transactions and pay whatever taxes you owe on your income-generating sales of a good or service, including tips.
And if you do get a 1099-K from a third-party payment provider that is incorrect — perhaps because that old furniture you sold when you moved went for less than you paid for it — it will be on you to document to the IRS why the money you received is not taxable income.
