(ConservativeInsider.org) – Millions of Americans send money to each other using cash apps like Venmo and PayPal. Others use sites like eBay to make a living selling various goods online. When the American Rescue Plan of 2021 was signed, these third-party sites were required to report business payments that added up to more than $600 to the IRS, which is much lower than the previous requirement of $20,000 or 200 transactions a year. However, this law created an enormous amount of confusion, with the IRS eventually delaying the reporting requirement until the 2023 tax season. However, many Americans are still facing confusion as they prepare to file their taxes because of this change.
Many cell phone cash transfer applications and internet sales sites are now asking users to supply their Social Security numbers so that the businesses can generate 1099-K tax forms for them. While the IRS has delayed this requirement for the 2022 taxes being submitted in the coming weeks, these companies are still attempting to gather the data now. Some have even mistakenly issued the 1099-K this year even though it is unnecessary according to the IRS.
— The Hill (@thehill) March 2, 2023
In addition to having to report capital gains at a much lower threshold, Americans and third-party companies are struggling to figure out how to categorize payments correctly. Some people use apps like Venmo to split the bill at a restaurant or pay a roommate for utilities. These transactions, though, should not be considered taxable income. However, if someone sells a bike and gets paid over $600 on the same app, it is considered a capital gain that must be reported. But, how do companies like PayPal decide which transaction is which for millions of users?
As this new law is rolled out in 2024 for the 2023 tax year, there is a lot of work to be done to ensure people’s transactions are reported correctly and even more stress is not added to taxpayers during this time of year. For now, though, taxpayers can breathe a sigh of relief that they do not need to turn in a 1099-K form to the IRS for payments over $600, even if they received it from a company. If you have any questions about your 2022 tax liability, you should contact a tax professional for guidance.
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