The IRS is warning Americans of a $600 limit for reporting Venmo cash app payments
The Internal Revenue Service issued a reminder this week for taxpayers to prepare to report transactions of at least $600 received through payment apps such as Venmoand PayPal and Cash App.
In an explanation posted online, the IRS cautioned small business owners of the $600 minimum to receive Form 1099-K for third-party payments exceeding $600.
Starting this year, third-party payment processors will be required to report a user’s business transactions to tax authority If they exceed $600 for the year. Payment apps were previously required to send users Form 1099-K if their total income exceeded $20,000 or they had 200 separate transactions during a calendar year.
Democrats made the change in March 2021, when they passed the US Rescue Plan without any Republican votes. Now, a single transaction of more than $600 will trigger the pattern. The change aims to crack down on Americans who evade taxes by underreporting the full extent of their gross income. However, critics say it amounts to government overreach at its worst, and that it could ultimately hurt small businesses.
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The new rule only applies to payments received for goods and services transactions, which means using Venmo or PayPal to send a loved one a gift, pay a roommate’s rent, or make a friend over for dinner will be excluded. Anyone who receives money from the sale of a personal item at a loss is also excluded; For example, if you buy a sofa for $300 and sell it for $250, the amount is not taxed.
“This does not include things like paying your family or friends again with PayPal or Venmo for joint dinners, gifts, or trips,” PayPal previously said. He said.
To be clear, business owners are actually required to report this income to the IRS. The new rule simply means that the IRS will find out what business owners have earned on cash applications, regardless of what that individual actually files for their 1099-K, because it expands the bottom line.
Form 1099-K is used to report payments for goods and services received by a business or individual in a calendar year, but there are some exceptions to total income that are therefore not subject to income tax, including amounts from the sale of personal items at a loss, amounts sent as damages and amounts sent as gifts.
“For the 2022 tax year, you must take into account the amounts shown on your Form 1099-K when calculating the total receipts for your income tax return,” PayPal said in a Q&A on its website. “The IRS will be able to refer to our report and your report.”
Cash apps will now be required to send users who meet the latest requirements a Form 1099-K for transactions made electronically or by mail.
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Apps may request additional information from Users in the near future in order to properly report transactions, and Users may be asked to provide an Employer Identification Number (EIN), Individual Tax Identification Number (ITIN), or Social Security Number (SSN) if not already in place. file.
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