The days of the "check is in the mail" are quickly becoming a thing of the past, and fewer companies are issuing paper checks when paying employees. This is true for salaried workers, hourly employees, freelancers, and gig employees alike. That has made it easier than ever to get paid, and it requires fewer trips to the mailbox.
However, there are several considerations during the tax filing season, and the Internal Revenue Service (IRS) has new rules that could apply to some transactions made for those who use Venmo, PayPal, CashApp, or other peer-to-peer (P2P) payment apps.
If you're just using these apps to pay for goods or services—such as when you buy an item on eBay or pay a friend to split the tab for dinner—there is nothing you'll have to report on your tax returns. On the other hand, if you accept business payments on a P2P platform, you are responsible for reporting those earnings just like any other form of payment.
In fact, the IRS now requires that P2P platforms provide information to the agency about customers who receive large payments for the sale of goods and services through their respective platforms. However, as the TurboTax website explains, the threshold for reporting those payments had previously been rather high. Returns for previous years required P2P platforms to report sellers who received over $20,000 in gross payment volume and over 200 separate payments in a calendar year. If you passed that threshold, payment app providers must provide you and the IRS a Form 1099-K for those business transactions.
The big change is that for returns occuring during calendar years after 2021, a 1099-K will need to be issued to individuals who receive gross payments that exceed $600 and for any number of transactions that are business-related. The new requirement—included as part of the American Rescue Plan—will apply for the 2022 tax season and beyond, and the first 1099-Ks won't be issued under the new, lower threshold until early 2023.
"[Payment app providers] are relying on consumer prompts and interfaces to help consumers classify the reportable versus non-reportable transactions on the front end, and then [providing] educational pieces, like FAQs, to help the consumer understand the details of the new reporting requirements if they receive a 1099," Scott Talbott, senior vice president of government relations at the Electronic Transactions Association, told CNN.
This can get more complicated for filers who do make occasional sales on services like Etsy, eBay, and Craigslist. For example, if you sold an item for over $600, even if it was sold for less than you paid for it and you didn't make a profit, you may still receive the 1099-K and will have to document why the money you received is not actually "taxable income.”
Peter Suciu is a Michigan-based writer who has contributed to more than four dozen magazines, newspapers and websites. He regularly writes about military small arms, and is the author of several books on military headgear including A Gallery of Military Headdress, which is available on Amazon.com.