Apps like Venmo, PayPal, and CashApp have taken a much larger front seat than many of us expected a few years ago. What might've just been a way for you to split a check or pay for an Etsy order before, could now be the way you receive your entire paycheck. These apps were built with our convenience in mind. So much so that we barely noticed as these third-party payment apps became part of our daily finances.
But guess who did notice? The IRS. And they've done something about it. What should you be aware of when using P2P apps from here forward? Are there PayPal or Venmo taxes you should be expecting this year? How will your taxes be affected when paying or accepting payment through PayPal or Venmo?
P2P Tax Implications for 2021
If all you use PayPal or Venmo for is to reimburse a friend for dinner or the like, you have nothing to worry about. But once you begin accepting business transactions through PayPal, you become responsible for reporting those earnings. In fact, PayPal, Venmo, and other P2P apps are required to report which of their users is making such transactions to the IRS. Who falls into this category?
PayPal and Venmo will report a seller's earnings to the IRS if you've received over $20,000 in gross payment volume and over 200 separate payments in a calendar year. If you do fall into this category, you can expect to receive a 1099-K from the platform. Even if you don't receive one, you're still required to report any taxable income you receive through such platforms.
Clearly, your average PayPal or Venmo user is not going to fall into this category. But this rule applies to all transactions up until January 2022. What changes can we expect in 2022?
P2P Tax Implications for 2022
Up until 2022, only those receiving over $20,000 through PayPal or Venmo had something to worry about. But this coming year, that number is lowered to just $600.
If you're a user of PayPal, you know that with each transaction you're asked whether it's between friends & family or in exchange for goods and services. This adjustment will only apply to payments made in exchange for goods and services. So if you're a PayPal user who receives payments for goods and services, and those payments amount to over $600, you can expect to receive a 1099-K in early 2023. This impacts gig workers, freelancers, Etsy sellers, contractors, and other forms of self-employment.
Luckily, this change only takes place in 2022. You have time now to set the habit of keeping solid, well-maintained financial records. Collect any pertinent invoices, receipts, bank statements, and other financial documents that might have a reflection on your taxes. If you are going to be receiving the majority or all of your income through PayPal, consider switching to a business account. This keeps your personal transactions separate and simplifies record-keeping.
Expert Tax Preparation & Financial Assistance
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