A new IRS rule set to go into effect in 2022, will impact businesses that use cash apps like Venmo, Zelle, and PayPal, as various news outlets are reporting.
An ABC Action News report said the new rule allows the IRS to take a closer look at cash app business transactions of $600 or more. The previous threshold was $20,000.
According to a report by WDSU 6, the change in the way third-party payment networks report money exchanged on these platforms was prompted by language in the American Rescue Plan.
The change will mostly affect businesses that receive payment through one of the cash apps. Currently, such apps are required to send tax forms to users “if their gross income [paid through the app] is $20,000 or more, or if they have 200 separate transactions within a calendar year,” WDSU 6 noted.
Transactions for personal use won’t be affected, Action News said. But when self-employed workers use the same cash app account for both personal and business transactions the line might get “blurry.”
The change affects the way transactions are reported, it does not change what’s taxable and deductible, WDSU 6 clarified. The news outlet stressed that it’s still important to keep good records, “especially if you are a business owner,” so if you are audited, you’ll have proof as to whether the money is taxable or nontaxable.
Sofia Johan, an associate professor of finance at Florida Atlantic University, seconds that advice, urging business owners who use cash apps to keep good records of all taxable and non-taxable transactions. Johan further recommends setting up a separate account for business transactions, according to ABC Action News.
Those who fall into the $600 or more cash apps business transaction threshold, will receive a Form 1099-K, Action News noted.