Upcoming tax changes for cash app transactions

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WEST PALM BEACH, Fla .– If you use cash apps like Venmo, Zelle, or PayPal for business transactions, changes are made to what those apps report to the IRS.

A new rule will come into effect on January 1, 2022.

RELATED: 5 Things to Know About the IRS ‘Plan to Tax Cash App Transactions

The IRS plans to take a closer look at business transactions of cash applications over $ 600.

If you use treasury apps for personal use, you won’t be affected, but the limit becomes blurry when freelancers can use the same treasury app account for personal and business transactions.

WPTV

Margarita Murphy says she uses cash app transactions to pay her rent.

In a mostly cashless world, it’s easy to use apps to make daily payments.

Margarita Murphy uses Zelle regularly, including for large expenses.

“I actually pay the rent on my apartment, so it’s over $ 600,” Murphy said.

The IRS won’t crack down on personal transactions, but a new law 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.

“From $ 20,000 to $ 600 – I’m just trying to figure out what kind of consumers they’re trying to catch,” said Sofia Johan, associate professor of finance at Florida Atlantic University.

Johan said the IRS is trying to close a billion-dollar tax gap due to taxpayer lack of reporting compliance.

“Is it worth it to go after these players, or these consumers, who typically transfer a few hundred dollars a month, so I’m only thinking about the cost-benefit here,” Johan said. .

Will there be differentiation between payments received for personal or business purposes? It’s already difficult for treasury apps to discern when transaction notes are sometimes emojis.

Sofia Johan, Associate Professor of Finance at Florida Atlantic University

WPTV

Professor Sofia Johan talks about the evolution of the IRS rules for cash application transactions.

“What they’re trying to do is just have data available in case they identify some taxpayers that their information doesn’t necessarily match, so that they save cash payments,” Johan said.

She advises those who run a business and use treasury applications to keep a good record of all taxable transactions and those that are not. It is recommended to create a separate account for business transactions.

“It can get complicated, and people push through it a lot, and it would be a shame to lose that small business aspect,” Murphy said.

If you fall into the $ 600 or more income in cash applications, you will receive a Form 1099-K.

Current tax law requires anyone to pay income taxes over $ 600, but taxes do not apply to personal transactions like meal reimbursements.


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