Tax lawyers in San Jose are reiterating that this year, any transaction exceeding $600 that taxpayers receive through Cash App, PayPal, Venmo, or other similar entities, must be reported to the Internal Revenue Service. A reminder was issued earlier this week by the IRS to both tax preparers and filers.
Third-Party Payment Processors Are Now Obligated to Report Transactions
In an online post, the IRS has warned small businesses and other individuals that third-party payment processors must now issue form 1099-K to any filer who received payments in excess of $600 for the tax year 2022.
This is a big change from the previous regulation, which required that third-party payment processors send the 1099-K form only in the event that the user’s gross income surpassed $20,000, or after a minimum of 200 separate transactions during the calendar year.
IRS tax attorneys have stated the Democrat majority made the change in March 2021, when, in the absence of any Republican votes, the American Rescue Plan was passed. Now, a single $600 transaction triggers the form. Intended to crack down on individuals underreporting taxes, this change is cited by critics as government overreach, and some are of the opinion it could ultimately hurt small businesses.
Some Exclusions Apply
The new regulation applies only to payments received for services and goods, rather than transactions involving rent payments, sending money to relatives or friends, paying rent to a roommate, and similar scenarios. Also excluded are transactions involving selling something at a loss. For instance, if someone purchased a stove for $1,000 and then sold it for $700, the $700 does not become a taxable amount.
Business Owners Are Required to Report Income Unchanged
According to a back-tax attorney, it’s important to understand that business owners are already obligated to report their income to the IRS. The new regulation merely gives the IRS a way to figure out which business owners or self-employed individuals earned money through cash apps and failed to report it. In other words, regardless of what a person reports on their 1099-K, the IRS will be able to determine what the actual amount was.
PayPal Creates a Q&A Page on Its Website
In a Q&A on its website, PayPal reminded members that the IRS can now cross- reference their report with that of PayPal. Therefore, they advised filers to carefully go over the amount shown on the 1099-K form when calculating income-tax return receipts.
All cash apps are now obligated to send users the new form, either by mail or electronically, if they meet the reporting criteria.
Third-Party Payment Processors May Request More Information
More information may be requested from various third-party payment processors in the near future, so that they can report transactions properly. If a filer’s ID is not already on file, for instance, a person signed up with PayPal or Venmo may have to submit their Individual Tax Identification Number (“ITIN”), Social Security number, or Employer Identification Number (“EIN”).
Some taxpayers may seek the advice of a cryptocurrency tax attorney if they are concerned about transactions made with bitcoin or other cyber currencies. Because the process requires extra attention to monies received through third-party payment processors, it is wise for filers to consult with tax lawyers in San Jose if they are unclear about the new regulation. Additional information can be found on the IRS Website.