(NewsNation) — If you were paid at least $600 through third-party payment apps, like Venmo or Zelle, preparing your taxes next year will be different than usual. You’ll now have to report those earnings to the IRS.
It’s a significant change to how taxpayers should report their income under a new regulation, as the IRS is cracking down on Americans who evade taxes by not reporting all of their earnings.
The new rule requires third-party payment platforms to issue Americans and the IRS a 1099-K for business transactions if they exceed $600 over the course of the year. A business transaction that is taxable is defined as a payment for a good or service.
A 1099-K is an income report form that deals with payment cards or third-party network transactions. Translation: Credit cards and services that receive money from someone else and give it to you.
Before the 2022 tax year, platforms like PayPal, Cash App, etc. only had to issue a 1099-K if someone engaged in more than 200 business transactions for which they received total payments of more than $20,000. For example, if an Uber driver collected $20,000 over at least 200 rides.
In 2021, Congress reduced that $20,000 over at least 200 transactions threshold to $600 over at least one transaction.
This means if you started a side hustle or are self-employed, the IRS will require you to report income over $600 paid to you through digital payment apps.
Items sold for profit on platforms like Facebook Marketplace, Etsy, etc., will also be taxed, so experts advise you to keep your receipts for documentation.
However, money sent to you by friends and family to pay for dinner or help with bills through third-party payment apps won’t be taxed. The reporting update only refers to goods and services.
Experts advise that you should be proactive and look for the 1099-K form on the third-party platform websites since it’s an electronic document, and don’t expect it will be mailed to you.
Adam Brewer, a tax controversy attorney, says small businesses previously under the radar, or someone using Cash App or Venmo for personal reasons who misreports earnings could end up with a tax issue.
“Get out ahead of this issue, don’t wait for the last day to do your taxes, don’t wait for an IRS notice a year and a half from now, get out in front of it and tackle these issues head-on and you’ll be happy you did,” Brewer said.
Many people can expect 1099-K forms from Venmo and services like it. It begins in the 2022 tax year, meaning the first forms will go out in the early weeks of 2023.