Will I Have to Pay Taxes on my Online Payments?
May 01, 2023The use of third-party online payment platforms to easily transfer cash from one person to another is now universal. After all, a quick Cash App or Venmo transfer is easier than splitting the check at the restaurant. 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.
You could almost hear the sighs of relief when the IRS announced a delay in implementing the $600 reporting threshold for third-party payment platforms like Paypal, Venmo, and Cash App. News and social media feeds reflected the fear that implementation would create additional tax forms. Not to mention it 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 use these apps for personal transactions, check the instructions to ensure your doing it properly. If the app offers the ability to track your personal transactions as personal, it’s a good idea to do so. Looking at my 2022 transactions, I exceeded $600 on several 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. Managing business and personal income may become confusing. However, you could simplify by limiting personal transfers to one app and keeping your business transactions limited to another. This could keep you from an IRS dispute on whether something is taxable income if the app mistakenly reports it.
At the time of this blog post, some programs are not obligated to generate a 1099-K. For instance, Zelle® states this on its site. Zelle® states if you receive taxable payments, reporting it is your obligation even if you do not receive a 1099-K.
This delay does not remove your obligation to report income
This delay in changing the 1099-K threshold does not mean you are not obligated to report taxable income. If you’re selling goods or offering paid services, you don’t 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 ensure 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.
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.