If you use Venmo, PayPal, or other payment apps, this tax rule change may affect you.

0


If you’re one of the millions of people who use payment apps like PayPal, Venmo, Square, and other third-party electronic payment networks, you could be affected by a tax return change that goes into effect in January. Payment application providers will have to begin reporting a user’s business transactions to the IRS if, in total, they total $ 600 or more for the year. A business transaction is defined as the payment for a good or a service. Prior to this change, application providers were only required to submit a Form 1099-K to the IRS if an individual account had at least 200 business transactions per year and those combined transactions resulted in gross payments of at least $ 20,000. . The expanded reporting rule is the result of a provision in the US bailout, which was enacted earlier this year. The ultimate objective of the provision is to suppress unreported taxable income. What hasn’t changed Remember that the new reporting threshold does not change your basic tax obligations. The income you receive for a good or service, including tips, has always been reportable and, in many cases, taxable. And you’ve always been responsible for reporting it on your tax return, whether or not a third party sends the information to the IRS. The rule change also does not make other transactions suddenly taxable. For example, your friend who sends you money on Venmo to reimburse you for half of last night’s dinner bill will not become taxable. The biggest change is the increased visibility the IRS will have on business transactions, both those that have always been the recipient of the income and those that haven’t. Why should I care? In theory, the only people who should be worried about the rule change are those who didn’t report all of their business income in the first place. In other words, “those who are tax evaders, who broke the self-report rules and used the old thresholds to avoid paying taxes,” said Scott Talbott, spokesperson for The Electronic Transaction Association. But in reality, according to tax experts, changing the threshold could cause administrative hassles for many filers who use payment applications, whether or not they are engaged in business transactions. it is a payment for goods or services, or a tax-free transaction. It will be up to the taxpayer to receive a 1099 in any form for a non-taxable event, like sharing rent between roommates, sharing dinner, or even selling something on eBay for less than what you paid. , to explain to the IRS that the 1099 was received for a tax-free transaction, ”said Mark Luscombe, senior analyst for tax publisher Wolters Kluwer Tax & Accounti. Also, Luscombe noted, there’s a good chance your business transactions will be double-reported – for example, if you’re a freelance writer or independent contractor, you can get a 1099-K from your app vendor. payment, as well as a 1099-NEC or 1099-MISC from your customer for the same transaction. “Again, the taxpayer will have to explain to the IRS that both 1099s are for the same transaction,” he said. What must I do now ? Each application provider must decide on the procedures it will use to adapt to the rule change and must alert its customers to what, if any, will be required of them in order to better identify the nature of their transactions. For example, PayPal, which now owns Venmo, recently released a first Q&A session for users of both apps. He noted that “In the coming months, we may ask you to provide tax information such as your employer identification number (EIN), your individual tax identification number (ITIN) or your social security number. (SSN), if you have not provided it to us. already. ”The net effect of the new reporting requirements for payment app users may be that some will require customers to pay them in cash, at least for smaller amounts like tips. Luscombe noted, they may decide to use an app only for taxable business transactions and separate their other non-taxable transactions.

If you’re one of the millions of people who use payment apps like PayPal, Venmo, Square, and other third-party electronic payment networks, you could be affected by a tax return change that goes into effect in January.

Payment application providers will need to start reporting a user’s business transactions to the IRS if, in total, they total $ 600 or more for the year. A business transaction is defined as the payment for a good or a service.

Prior to this change, application providers were only required to submit a Form 1099-K to the IRS if an individual account had at least 200 business transactions per year and those combined transactions resulted in gross payments of at least $ 20,000. .

The expanded reporting rule is the result of a provision in the US bailout, which was enacted earlier this year. The ultimate objective of the provision is to suppress unreported taxable income.

What has not changed

Keep in mind that the new reporting threshold does not change your basic tax responsibilities. The income you receive for a good or service, including tips, has always been reportable and, in many cases, taxable.

And you’ve always been responsible for reporting it on your tax return, whether or not a third party sends the information to the IRS.

The rule change also does not make other transactions suddenly taxable. For example, your friend who sends you money on Venmo to reimburse you for half of last night’s dinner bill will not become taxable.

The biggest change is the increased visibility the IRS will have on business transactions, both those that have always been reported by the income recipient and those that have not.

Why should I care?

In theory, the only people who should worry about the rule change are those who did not report all of their business income initially. In other words, “those who are tax evaders, who broke the self-report rules and used the old thresholds to avoid paying taxes,” said Scott Talbott, spokesperson for The Electronic Transaction Association.

But in reality, according to tax experts, the change in threshold could cause administrative problems for many filers who use payment applications, whether or not they are engaged in business transactions.

“These third-party settlement entities may not know for sure whether they are dealing with a business or individual or whether they are processing a payment for goods or services, or a non-taxable transaction. taxpayer, if he receives a 1099 in any form for a non-taxable event, like sharing rent between roommates, sharing a dinner bill, or even selling something on eBay for less than what you paid, to explain to the IRS that the 1099 was received for a tax-free transaction, ”said Mark Luscombe, senior analyst for tax publisher Wolters Kluwer Tax & Accounting.

Also, Luscombe noted, there’s a good chance your business transactions will be duplicated – for example, if you’re a freelance writer or independent contractor, you might get a 1099-K from your payment application provider. , as well as a 1099-NEC or 1099-MISC from your client for the same transaction.

“Again, the taxpayer will have to explain to the IRS that both 1099s are for the same transaction,” he said.

What must I do now ?

Each application provider must decide what procedures they will use to adapt to the rule change and will need to alert their customers to what, if any, will be required of them to better identify the nature of their transactions.

For example, PayPal, which now owns Venmo, recently released a first Q&A session for users of both apps. He noted that “In the coming months, we may ask you to provide tax information such as your employer identification number (EIN), your individual tax identification number (ITIN) or your social security number. (SSN), if you have not provided it to us. already.”

The net effect of the new reporting requirements for payment app users may be that some will require customers to pay them in cash, at least for smaller amounts like tips. Or, as Luscombe noted, they may decide to only use an app for taxable business transactions and separate their other non-taxable transactions.


Leave A Reply

Your email address will not be published.