The use of third-party payment platforms to easily transfer cash from one person to another is now ubiquitous. Rather than having to split the check at the restaurant or write your buddy a check for those playoff tickets, most Americans “Cash App“ or “Venmo” one another. According to Pew research, 76% of those surveyed have used at least one of the four most popular third-party platforms to make a digital payment.
A collective sigh of relief was heard when the IRS announced a delay of the implementation of the $600 reporting threshold for third-party payment platforms like Paypal, Venmo, and Cash App. As the year ended, the news and my social media feeds were dreading the implementation of this change for fear it would create an additional tax form to deal with for many and could unintentionally cause personal transactions to count as business transactions. According to the December 23rd press release:
“The IRS and Treasury heard a number of concerns regarding the timeline of implementation of these changes under the American Rescue Plan,” said acting IRS Commissioner Doug O’Donnell. “To help smooth the transition and ensure clarity for taxpayers, tax professionals and industry, the IRS will delay implementation of the 1099-K changes. The additional time will help reduce confusion during the upcoming 2023 tax filing season and provide more time for taxpayers to prepare and understand the new reporting requirements.”
Properly track these transactions in 2023
If you are using these apps for personal transactions, check with your app’s instructions to see if you are doing so properly. That means if the app offers you the ability to track your personal transactions as personal, it is a good idea to do so. Looking at my 2022 transactions, I exceeded $600 on a couple of apps. By tracking these properly as personal, I should have avoided receiving the form if there was no delay. This would have saved me time and money on my tax prep.
If you have a business and use these apps, you will want to report your business income as such. If you are worried that toggling between business and personal may become confusing, you could simplify by doing all your personal transfers on one app and keeping your business transactions limited to another. This could keep you from having to dispute with the IRS whether something is taxable income if the app mistakenly reports it.
At the time of this blog post, some programs have stated they are not obligated to generate a 1099-K. For instance, Zelle® states this on its site. Zelle® also clearly states if you receive taxable payments, you are still obligated to report it even if you do not receive a 1099-K.
This delay does not remove your obligation to report income
While this is a delay in the change of the 1099-K threshold from $600, it does not mean that you as a taxpayer are not obligated to report taxable income for 2022. Whether you are selling goods or offering services and being paid for it, you do not want to find yourself in a situation where you can be accused of tax evasion for not properly reporting this income. The consequences of such a charge can be very serious.
If you are unsure what constitutes income, check out this resource from the IRS: What is Taxable and Nontaxable Income? If you have a side hustle or business, it is worth it to consult with a tax preparer to make sure your business has the proper form and you are keeping track of both the income and expenses of the business. Doing so throughout the year can save you a lot of stress come tax time.
In conclusion, while there is no reason to worry about losing the convenience of these electronic cash transfers, take a second look to be sure you are using the right settings to track your personal and business transactions properly. As you know, in today’s environment you can easily go over $600. You don’t want that to result in a nasty surprise from the IRS.