If you have a side hustle selling things online and being paid through an app, the Internal Revenue Service (IRS) may be looking over your shoulder. The tax agency is tightening reporting requirements for sellers paid through Venmo, PayPal, and Cash App.
Until now, most payment apps did not report sales revenue for users until it reached $20,000 for 200 transactions in a calendar year. But as part of President Biden's $1.9 trillion COVID-19 relief bill, which Congress passed in 2021, Congress sought to increase government revenue by tightening the reporting standard.
As a result of the legislation, if you are selling anything and being paid through apps, you must report any revenue from any transactions that total $600.
The revenue was always taxable but many sellers often failed to report it. The IRS says the new reporting standard will make it much more difficult to avoid paying taxes earned by selling things online. How much revenue it expects to gain is hard to determine.
Under the new rules, networks used by payment apps will issue 1099-K forms for any user whose gross receipts exceed $600. The forms will then be filed with the IRS.
What about non-business payments?
One wrinkle in the new rule is determining which payments are business-related and taxable and which are simply personal payments to friends or family. The IRS emphasizes that money received through third-party payment applications from friends and relatives as personal gifts or reimbursements for personal expenses is not taxable, but it’s unclear how personal payments will be identified.
Some members of Congress have asked the IRS to delay the implementation of the rule, calling it confusing.
The IRS, meanwhile, said affected taxpayers should make estimated tax payments each quarter, based on the income they have received, to avoid a large tax bill in April.