Tax payers who have accepted payments through apps such as PayPal, Cash App and Venmo might have to take extra steps when filing their taxes this year.
CORPUS CHRISTI, Texas — With the holidays in full swing, residents are probably picking up extra hours or starting side jobs to get some much needed cash.
While wanting more is a good thing, one financial expert warns that not reporting certain forms of income can actually hold tax payers back.
Owner of Danny’s Income Tax Service Stacy Trevino said that residents will have new guidelines to follow when they file for the 2022 tax year. The American Rescue Act of 2021 changed the reporting threshold for annual income through third-party payment apps such as PayPal, Venmo and Cash App to the IRS through a 1099-K tax form. There is no change to the taxability of income; the only change is to the reporting rules for Form 1099-K, according to the IRS website.
In prior years, the reporting threshold for third party payment apps was $20,000 or more than 200 business transactions within a calendar year, according to Cash App. Now the reporting threshold has changed to $600. The significant drop means that many taxpayers could be seeing 1099-K forms in the mail this year.
“The biggest thing is going to be that they’re basically cracking down on income, on unreported income, that’s what they’re choosing to go after right now,” she said.
Trevino added that while contracted workers are already obligated to report their income to the IRS, the focus on payment apps make the process more detailed.
“This is huge because it used to be over $20,000 now it’s $600. So it’s affecting everyday Americans, hair stylists, resellers, it’s affecting them all,” she said.
Payment apps will send a 1099-K form to users who have received more than $600 in income through their respective app. Trevino said that residents can also receive the form whether they used it for business purposes or just to reimburse others. Even a single transaction exceeding $600 can trigger a 1099-K, according to the IRS.
“If you’re reimbursing your roommate for your share of the rent, that won’t be taxable,” she said.
With income guidelines for payment apps differing from previous years, Trevino said that residents might have to reach out for a correction with their respective app over which payments actually constitute a business sale.
“If you take a friend out to lunch and they pay you back, that is not taxable,” she said. “It’s not gonna affect anybody who uses it for reimbursements, or it should not. Problem is, this is the first year that this is happening. So we have to count on Cash App, Venmo, knowing what they’re doing.”
For Sleight Production’s owner Jake Gonzalez, payment apps make up a majority of his income. Gonzalez said that the apps don’t just make collecting payments easier, but also help him keep digital records.
“All the time. I constantly use Cash App, Venmo, PayPal especially because that’s how I send my invoices out,” he said.
Gonzalez told 3NEWS that before the threshold limit was lowered to $600, filing his taxes was already a difficult task. Now, he says that he will have to be more detailed when reporting his annual income.
“In that sense it just makes me wanna be a lot more careful because submitting your taxes as a contractor, you already have to be really specific about how you put it in,” he said.
Trevino warns residents that not reporting your income accurately can have steep consequences, which could include additional penalty and interest fees.
“You’ll get a letter from the IRS that states you owe your tax liability. They’ll tack on penalties and interest, so it’s not gonna go away, it’s only gonna get worse,” she said.
Residents are reminded that if they have any concerns about filing their taxes to call a professional and set up an appointment.
More from 3News on KIIITV.com:
Subscribe to our YouTube channel for your daily news and exclusive extended interviews.
Put your name and contact information below, or email tell3@kiiitv.com, so we can get in touch with you about your story should we have questions or need more information. We realize some stories are sensitive in nature. Let us know if you’d like to remain anonymous.
If you do not have a photo/video to submit, just click “OK” to skip that prompt.