(Yahoo!Finance) - There has been a flurry of furious cash app users this past week angrily responding to rumors of President Joe Biden’s new tax reporting plan requiring taxpayers to report all Venmo and cash app income over $600.
This information is largely false. Biden signed into law a modification to IRS reporting requirements on digital transactions. It was modified from its prior $20,000 in-aggregate payments and 200 transactions to a new threshold of $600 in-aggregate payments with no minimum transactions. This rule will take effect on Jan. 1, 2022.
The new rule applies for business transactions, which can often be paid through cash apps like Venmo and PayPal. In the past, sellers on Etsy and eBay were able to go largely undetected in terms of how much income they were truly bringing in because identifying income through cash apps was difficult to do.
Now you will likely receive a 1099-K form if you receive more than $600 on any cash app — but this does not mean that you need to fill it out or report any income.
For most users, you will not need to do anything at all. This new reporting rule applies to business transactions and sellers of services, meaning that if you are using Venmo between friends for reimbursement for let’s say, dinner or shopping this does not count as countable taxable income.
The IRS is looking for those who use cash apps as a way to circumvent banks and traditional forms of income reporting. Current tax law, regardless of the new rule, requires anyone to pay taxes on income more than $600 regardless of where it comes from.
The crucial word being income. Going out to dinner with your friends, shopping reimbursement for concert tickets, rent, groceries, utilities etc does not count as income – those are simply expenses and discretionary spending.
If you sell something or provide services to someone in exchange for money, you will need to use Form 1099-K to report this income to the IRS if the TOTAL amount exceeds $600 for the year.
If you are a business owner, no matter how small your business might be, it is a good idea to report ALL income and expenses to the IRS to make sure you’re not hit with a tax bill. If your income is fairly low, it’s likely you will not owe any taxes at all, so in most cases, it’s only a benefit to you as a business owner to keep your tax record as clean as possible.
By Georgina Tzanetos
