Is the IRS Really About to Tax Your Venmo, PayPal, and Cash App Transactions?

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Media outlets have been debunking claims that there’s a new tax on cash app transactions worth $600 or more. And while it’s true that it’s not a “new” tax as some viral social media posts might claim, new IRS regulations do make it easier for the agency to tax previously undisclosed income paid through apps like Venmo or PayPal. Here’s what you need to know.

How the new cash app regulations work

Currently, cash apps are required to send you 1099 forms for transactions on cash apps that exceed a total gross payment of $20,000 (or exceed 200 transactions total) within a single calendar year. These forms are used to report different types of income you’ve received in a given year, outside of their regular salary. As part of last March’s American Rescue Plan Act, however, this threshold will be lowered to $600 in total payments, with no minimum transaction number, as of Jan. 1, 2022.

Technically, you won’t owe any additional taxes, as it applies only to income that should be reported to the IRS already. But if you haven’t been, uh, diligent in reporting income less than $20,000 paid through these apps, you’ll want to do so now.

Importantly, this rule doesn’t apply to non-income related transactions like splitting a bill for rent or sending a friend a loan—just money you’ve made off of goods and services for a profit (CNBC has a good summary of what constitutes income here). In this case, the IRS isn’t looking at individual transactions so much as the general inflows and outflows of cash going through a cash app account, which will help them better identify potential income that they might want to audit.

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Aside from that, nothing changes: At tax time, you’d still report just your eligible income, including those made on cash apps. If the IRS has questions about it, they’ll ask you. For that reason, however, you’ll want to keep good records of each transaction over $600.

Keep a separate cash app account for business transactions

If you do get audited, the last thing you want to deal with is a messy pile of personal and business-related transactions. For that reason, it’s best to maintain a separate cash app account for transactions relating to income, with good records for what each transaction was for. After all, as a taxpayer the onus is on you to account for your income when asked by the IRS, so the better records you keep, the less you’ll have to worry about it. For more information on 1099 forms and cash apps, check out this IRS FAQ.

 

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