A new law requires cash apps like Venmo and Cash App to report payments of $600 or more to the IRS.
The American Rescue Plan includes language for third-party payment networks to change the way they report money exchanged on these platforms. This decision has left many people wondering if they will be taxed on payments received by friends and family.
How does this new tax law work?
Currently, cash apps are required to send forms to users if their gross income is $20,000 more, or if they have 200 separate transactions within a calendar year. The income items are reported on Form 1099-K. However, as part of the American Rescue Plan, cash apps will now need to report payments over $600. This means more people will receive tax forms.
Will people have to pay taxes because of this change?
While this proposal is a new way of reporting, it does not change what's taxable and deductible. For example, if you are sending money to a friend or paying someone back for a meal, it's still considered nontaxable. But if you are getting money for business transactions, you are required to claim the money on your tax return and pay taxes on the income.
What should taxpayers do at this time?
You should still keep good records, especially if you are a business owner. This way, if you are audited, you can prove whether the money is taxable or nontaxable. It is also a good idea to have a separate cash app platform for your business.
You can find more information about the new tax law reporting by following Kemberley Washington on Twitter.