New IRS rules: Venmo and PayPal
The way we move money differs from the way things were done a decade ago. The idea of transferring money easily and quickly to anyone, anywhere was a pipe dream. Third-party payment apps like Venmo, PayPal, and Cash App changed that. Now the IRS is making sure that if you do business outside of the regular banks, they can still work out how much extra taxes you owe.
In the past, if you wanted to pay someone you would write a check. Or if you did a bank transfer you had to go into the branch with an appointment and fill out a bunch of paperwork. When internet banking hit the mainstream, things changed, but there were still a bunch of hoops to jump through if you wanted to send money to someone that didn’t bank with the same institution as you.
Third-party payment processors disrupted the old way of thinking. Suddenly you could transfer cash easily outside of a traceable bank. Because they are essentially outside of the regular banking system, many folks figured it was an easy way to dodge their taxes.
Those days are now over. If you use third-party payment apps to get paid in your business, or side hustle, be aware that these payment processors will now be required to provide both users and the IRS with Form 1099-K if any business transactions add up to more than $600 over the course of the year. Previously, the payment apps were required to send users Form 1099-K only if they had 200 separate transactions within a calendar year or their gross income through the app exceeded $20,000. The new rules mean that one single transaction over $600 will now trigger the form being sent. “Be aware, this new rule only applies to transactions for goods and services. “Martin Walcoe, President & CEO for David Lerner Associates. “If you use any third-party payment app like Venmo or PayPal and you send a loved one some cash as a gift it won’t count as income. If you are sending money as a gift, make sure you check the friends and family box rather than paying for goods and services. Or the IRS will count it as income.”
Never hide income as a gift, this could come back to bite you later on. If you use the party payment apps, then you’ll have to make sure that your bookkeeping is up to speed this coming year including all the money received through PayPal Venmo, or the cash app.
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