Information has circulated the internet about payments made through mobile money applications such as Venmo, PayPal, Cash App, etc., being taxed starting January 1, 2022. To clear up any confusion, we wanted to make sure you understand the rule and how it may or may not apply to you.
As of January 1, the mobile payment applications are required to report certain transactions totaling more than $600 per year to the IRS. Previously, the threshold for reporting these transactions was much higher, at gross payments exceeding $20,000 or more than 200 transactions within a calendar year. This allowed a lot of people to go under the table with their income received via third-party platforms and avoid reporting it to the IRS on their tax returns.
The purpose of the rule is to ensure that any payments made for goods or services are being reported and taxed. So if you are paid via a mobile application for anything you have sold or services you have provided, this will apply to you. If you have a “side-hustle” like an Etsy shop or a rental house and this is how you receive income from it, this is something to be aware of.
This is not the same as reimbursing a friend or family member for dinner or rent; there is a difference between paying someone for an item bought online and the transfer of funds between friends. PayPal and Venmo both offer the option to mark transactions as either personal/friends/family or goods and services, so make sure as you are utilizing these applications you are selecting the appropriate category.
If you do make more than $600 of income via a third-party application, you will receive a Form 1099-K from that third party. For example, if you collect payment for goods or services via Venmo and receive more than $600 in 2022, you will receive a 1099-K from Venmo to be reported on your 2022 tax return.
This also means that if you sell personal items and receive payments via a third-party application, you will receive a Form 1099-K. For example, if you sell your Super Bowl tickets on Ticketmaster, and the payments total over $600 for the year you will receive the Form 1099-K. At that point, you would need to know how much you originally paid for the tickets to report the transaction properly. If you sell personal items for more than the original purchase price, the profit is considered capital gain income. Unfortunately, if you sell them at a loss, the IRS does not allow you to take that deduction.
If you are still feeling unclear about the new rule, please do not hesitate to reach out, and we will be happy to answer any questions!