The days of the “check in the mail” are quickly over, and fewer and fewer companies are issuing paper checks when paying their employees. This is true for salaried employees, hourly employees, freelancers and construction workers. It’s made it easier than ever to get paid, and it requires fewer trips to the mailbox.
However, there are several considerations during tax filing season, and the Internal Revenue Service (IRS) has new rules that may apply to certain transactions made for those using Venmo, PayPal, CashApp, or others. peer-to-peer (P2P) payment applications.
If you simply use these apps to pay for goods or services, such as when you buy an item on eBay or pay a friend to share the tab for dinner, you won’t have to report anything on your tax returns. On the other hand, if you accept business payments on a P2P platform, you are responsible for reporting that income like any other form of payment.
In fact, the IRS now requires P2P platforms to provide information to the agency about customers who receive large payments for the sale of goods and services through their respective platforms. However, as the TurboTax website Explain, the threshold for reporting these payments was previously quite high. Returns from previous years required P2P platforms to report sellers who received more than $20,000 in gross payment volume and over 200 separate payments in a calendar year. If you have exceeded this threshold, payment application vendors must provide you and the IRS with a Form 1099-K for these business transactions.
The big change is that for returns occurring in calendar years after 2021, a 1099-K will need to be issued to people who receive gross payments over $600 and for any number of business-related transactions. The new requirement, included in the US bailout, will apply for the 2022 tax season and beyond, and the first 1099-Ks will not be issued under the new lower threshold until early 2023.
“[Payment app providers] leverage consumer prompts and interfaces to help consumers categorize reportable versus unreportable transactions on the front-end, and then [providing] educational materials, like FAQs, to help the consumer understand the details of the new reporting requirements if they receive a 1099,” Scott Talbott, senior vice president of government relations at the Electronic Transactions Association, told CNN.
It can get trickier for filers who make occasional sales on services like Etsy, eBay, and Craigslist. For example, if you sold an item for more than $600, even though it was sold for less that you paid for it and did not make a profit, you can still receive the 1099-K and will have to justify why the money you received is not actually “taxable income”.
Peter Suciu is a Michigan-based writer who has contributed to over four dozen magazines, newspapers, and websites. He writes regularly on military small arms and is the author of several books on military headgear, including A gallery of military hairstyleswhich is available on Amazon.com.
Picture: Reuters.
