Any profit above $600 must now be reported to the IRS whether you’re self-employed or have a side hustle and are paid using digital applications like PayPal, Cash App, or Venmo.
CNET reports that a section of the 2021 American Rescue Plan, which took effect on January 1, requires third-party payment processors to disclose to the IRS transactions totaling more than $600 per year.
Previously, a third-party payment platform would only report to the IRS if a user had more than 200 commercial transactions and made more than $20,000 in payments in a calendar year.
This new law will not affect your taxes for 2021, which you will file this tax season. However, it will apply to your profits in 2022, which you will disclose when you submit your taxes in 2023.
Many individuals, however, use PayPal and Venmo for P2P (peer-to-peer, or person-to-person) transactions like transferring money to a buddy for movie tickets or chipping in for pizza.
If you execute the payment as a “family and friends” transaction, you may assure them they won’t be taxed on those payments. According to Yahoo Finance, you may also use Cash App to prevent a transaction from being mistakenly processed as a business purchase.
How to prevent taxes in CashApp
CashApp has two offerings:
- Cash for business
- Personal CashApp
You will get a 1099-K for all payments made by Cash for Business, regardless of the nature of the transaction or what it was for if you use the platform. You won’t receive a 1099-K if you exclusively use the personal Cash App — and be sure to utilize it for money moving hands between friends and family to stay in accordance with IRS tax regulations. To guarantee that your transactions are treated as personal exchanges, there are no additional options to pick.