Fact or fiction: The IRS wants to know about your Paypal and Venmo transactions in 2022

Israel Sebastian/Getty Photos

If you happen to’re self-employed or have a facet hustle and receives a commission by way of digital apps like PayPal, Money App or Venmo, any earnings over $600 will now be reported to the IRS. A provision from the 2021 American Rescue Plan, which went into impact on Jan. 1, directs third-party cost processors to report transactions acquired for items or companies totaling over $600 per yr to the IRS. 

Previous to this laws, a third-party cost platform would solely report back to the tax company if a person had greater than 200 business transactions and made greater than $20,000 in funds over the course of a yr. 

This new legislation will not apply to your 2021 taxes, which you will file this tax season. However it should apply to the earnings you make all through 2022, which you will report once you file in 2023. 

There’s a number of speak on-line about this new tax reporting requirement and if you happen to earn cash by way of a digital cost app, it’s possible you’ll be confused about what’s true and what is not. Let’s separate the actual fact from the fiction.

Learn extra: Don’t overlook these 13 tax deductions and credits in 2022

Truth: This is not a tax change, it is a reporting change

If you happen to’re self-employed, it is best to already be paying taxes in your whole earnings, no matter the way you obtain your funds for items and companies. The brand new laws just isn’t a tax change — it is a tax reporting change so the IRS can hold tabs on the transactions made by way of cost apps that usually go unreported. 

Going ahead, third-party cost corporations will problem you a 1099-K tax kind every year if you happen to earn $600 or extra yearly in earnings for items or companies. This tax kind would possibly embody taxable and nontaxable transactions, notably if the account is for each enterprise and private use. 

The IRS may also obtain a duplicate of the tax kind and will not be relying purely on self-reporting. “The IRS will be capable to cross-reference each our report and yours,” Paypal famous in a November 2021 press release.

To make managing your corporation funds simpler, we suggest creating separate PayPal, Zelle, Money App or Venmo accounts simply on your skilled funds.

Learn extra: Estimated taxes for 2022: What they are, who needs to pay them, and when they’re due

Fiction: The IRS is counting cash you ship to household and buddies

Rumors have circulated that the IRS was cracking down on cash despatched by way of third-party cost apps to household and buddies, however that is not true. Private transactions involving items, favors or reimbursements will not be thought of taxable. Some examples of nontaxable transactions embody: 

  • Cash acquired from a member of the family as a vacation or birthday reward
  • Cash acquired from a buddy masking their portion of a restaurant invoice
  • Cash acquired out of your roommate or associate for his or her share of the hire and utilities

Truth: Cost apps could also be requesting tax info from you

Now that this new legislation is in impact, cost apps like PayPal could also be reaching out to you to substantiate tax info, resembling your employer identification quantity, particular person tax identification quantity or Social Safety quantity. If you happen to personal a enterprise, you almost certainly have an EIN, however if you happen to’re a sole proprietor or particular person freelance or gig employee, you will present an ITIN or Social safety quantity. 

Learn extra: Doing taxes on your phone? Better read this first

Fiction: Private objects bought at a loss can be taxed

If you happen to promote private objects for lower than you paid for them and gather cash through third-party cost apps, this new laws will not influence you. For instance, if you happen to purchase a sofa on your house for $500 and later promote it on Fb Market for $200, you will not owe taxes on the sale. That is as a result of it is a private merchandise you’ve got bought at a loss. Nevertheless, it’s possible you’ll be required to indicate documentation of the unique buy to show that you just bought the merchandise at a loss.

However, in case you have a facet hustle the place you purchase objects and resell them for a revenue through PayPal or one other digital cost app, then earnings over $600 can be thought of taxable and reported to the IRS. 

Be sure that to maintain a very good report of your purchases and on-line transactions to keep away from paying taxes on any nontaxable earnings — and when unsure, attain out to a tax skilled for assist.

Learn extra: Best tax software for 2022: TurboTax, H&R Block, Jackson Hewitt and others compared

Source link

Fact or fiction: The IRS wants to know about your Paypal and Venmo transactions in 2022

Leave a Reply

Your email address will not be published.

Scroll to top