Do you use third-party cash transfer apps – specifically Venmo, PayPal, Zelle, and/or Cash App?
If so, be aware that all four now are required to report payments of $600 or more – annually – to the IRS under a tax code passed in March 2021, to ensure users are paying their fair share of taxes.
These platforms also allow crypto purchases, although it is not clear that was a factor in their selection.
Beginning Jan. 1, 2022, third-party payment networks will be required to send users Form 1099-K for transactions made, by mail or electronically. The new tax reporting requirement will impact 2022 tax returns filed in 2023.
The new tax code came in as part of the American Rescue Plan Act, which went into effect on January 1, 2022.
This reportedly does not apply to transfers for personal expenses, however; for now it is relevant only to “business transactions.”
According to an associate professor of accounting at Fowler College of Business at San Diego State University quoted by Spectrum News 1, the new law does not apply to personal transactions. Dr. Steven Gill told the news outlet on Saturday that casual money transfers between friends are not included in the reporting.
“For small businesses, there’s no reason to panic,” he added. “This will be a little bit of a learning year for everyone, and over time we can expect the IRS to use the information on 1099-Ks. That’s the reason they expanded them to begin with, in order to try to identify tax payers who really might not be reporting all their income.”