The IRS set out a new law that will require cash apps like Venmo, Zelle, and Paypal to report aggregate business transactions of $600 or more to the IRS. The previous threshold was $20,000.
The change will mostly affect businesses that receive payment through one of the cash apps. As part of the American Rescue Plan, cash apps will now need to report payments over $600 which means more people will receive tax forms.
Currently, such apps are required to send tax forms to users “if their gross income [paid through the app] is $20,000 or more, or if they have 200 separate transactions within a calendar year,” according to WDSU 6.
However, those who use cash apps for personal use won’t be impacted.
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But where the line gets blurry is when self-employed workers use the same cash app account for both personal and business transactions.
While this proposal is a new way of reporting, it does not change what’s taxable and deductible.
For example, if you are sending money to a friend or paying someone back for a meal, it’s still considered nontaxable.
But if you are getting money for business transactions, you are required to claim the money on your tax return and pay taxes on the income.
Experts advise those who run a business and use cash apps to keep a good record of all taxable transactions and those that are not. Making a separate account for business transactions is recommended.
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“What they are trying to do is just have data available in the event they do identify certain taxpayers where their information may not necessarily tally up, so they will back up onto the cash payments,” said Sofia Johan, an associate professor of finance at Florida Atlantic University.
Currently, cash apps are required to send forms to users if their gross income is $20,000 more, or if they have 200 separate transactions within a calendar year. The income items are reported on Form 1099-K.
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