Americans who made money online this year could face a potentially brutal tax hit in 2023.
That’s because starting next year, taxpayers must report to the IRS at least $600 in transactions received through payment apps like Venmo, PayPal, and Cash App.
In one year The explanation was published online last monthThe IRS has warned small business owners about the $600 threshold for receiving Form 1099-K for third-party payments over $600.
Third-party payment processors will now be required to report to the IRS if a user’s business transactions exceed $600 for the year. Previously, payment apps were required to send users a 1099-K if their gross revenue exceeded $20,000 or had 200 separate transactions in a calendar year.
“I think people are going to be surprised when they get these,” Hanson Bridgett’s tax attorney, Nancy Dollar, told FOX Business.
Democrats made the change in March 2021 when they passed the American bailout without Republican votes.
Now a single transaction over $600 will trigger the form. The amendment aims to combat tax evasion by underreporting Americans’ gross income. But critics say it’s government at its worst and could hurt small businesses.
The bottom line of the report threatens to wipe out millions of Americans making money online. About one in four Americans earn extra income by selling something online, renting out their home, or using a digital platform for work. According to the Pew Research Center.
According to Dollar, the change could deter some Americans from participating in the gig economy.
“Everybody I know uploads old stuff to these platforms because it’s so easy,” Dollar said. “Or they’ve taken on casual gig work and it also affects gig workers who underreport their earnings. I think it will make people either cut back on these activities or take them more seriously and monitor them. “
The new rule only applies payments received except for goods and services transactions, such as using Venmo or PayPal to send a gift to a loved one, pay your roommate’s rent, or pay for a friend’s dinner. Also excluded is anyone who receives money from the sale of personal property at a loss; for example, if you bought a sofa for $300 and sold it for $250, that amount is tax-free.
“This does not include things like paying family or friends for dinner, gifts, trips together through PayPal or Venmo” PayPal said earlier.
To be clear, business owners must already report this income to the IRS. The new rule means that the IRS will determine what income business owners received through cash applications regardless of whether they report on a 1099-K, as it expands the scope of the service.
Form 1099-K is used to report payments for goods and services received by a business or individual during the calendar year, but there are certain exceptions to gross income that are not subject to income tax, including amounts from the sale of personal items at a loss, amounts sent as compensation and amounts sent as gifts.
President Biden speaks at Max S. Hayes High School in Cleveland on July 6, 2022 about the economics and final rule of the Special Financial Assistance Program. (Saul Loeb/AFP via Getty Images/Getty Images)
“You must consider the amounts reported on your Form 1099-K when calculating gross receipts for your 2022 tax return,” PayPal said in a Q&A on its website. “The IRS can reference both our report and yours.”
Cash apps will now be required to send eligible users the latest Form 1099-K for transactions via email or mail.