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IRS warns Americans about $600 threshold to report Venmo, Cash App payments

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The Revenue Agency issued a reminder this week that taxpayers be prepared to report transactions of at least $600 received through payment apps such as We comePayPal and Cash Apps.

In a explainer Posted online, the IRS warned small business owners of the $600 threshold for receiving Form 1099-K for third-party payments over $600.

Starting this year, third-party payment processors will have to report a user’s business transactions to the IRS if they exceed $600 for the year. Payment apps were previously required to send users Form 1099-K if their gross income exceeded $20,000 or if they made 200 separate transactions within a calendar year.

Democrats made the change in March 2021 when they passed the American Rescue Plan with no Republican vote. Now, a single transaction over $600 will trigger the form. The change is intended to crack down on Americans who evade taxes by not reporting the full size of their gross income. However, critics say it amounts to the worst of government excesses and could ultimately hurt small businesses.

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The new rule only applies to payments received for goods and services transactions, which means that using Venmo or PayPal to send a gift to a loved one, pay your roommate’s rent, or reimburse a friend for dinner will be excluded. Anyone who receives money from the sale at a loss of a personal item is also excluded; for example, if you bought a sofa for $300 and sold it for $250, the amount isn’t taxable.

“This doesn’t include things like paying your family or friends back using PayPal or Venmo for dinner, gifts, shared trips,” PayPal previously She said.

To be clear, business owners are already required to report such income to the IRS. The new rule simply means that the IRS will find out how much entrepreneurs have earned on cash apps, regardless of what the individual actually reports on their 1099-K, because it broadens the scope of the threshold.

Form 1099-K is used to report payments for goods and services received by a business or individual in the calendar year, but there are certain exclusions from gross income that are therefore not subject to income tax, including amounts arising from the sale of personal items at a loss, amounts sent as a refund and amounts sent as a gift.

“For tax year 2022, you should consider the amounts listed on your Form 1099-K when calculating gross receipts for your tax return,” PayPal said in a question and answer session on its website. “The IRS will be able to compare both our report and yours.”

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Written by Natalia Chi

Chicago Popular; Chicago breaking news, weather and live video. Covering local politics, health, traffic and sports for Chicago, the suburbs and northwest Indiana.

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