WEST PALM BEACH, Fla. — If you use cash apps like Venmo, Zelle or PayPal for business transactions, some changes are coming to what those apps report to IRS.
A new rule will go into effect on Jan. 1, 2022.
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The IRS plans to take a closer look at cash app business transactions of more than $600.
If you use cash apps for personal use, you won't be impacted, but where the line gets blurry is when self-employed workers may use the same cash app account for personal and business transactions.
In a mostly cash-less world, it's easy to use apps to make everyday payments.
Margarita Murphy uses Zelle regularly, including for big expenses.
"I actually pay rent through it for my apartment, so that's over $600," Murphy said.
The IRS won't be cracking down on personal transactions, but a new law will require cash apps like Venmo, Zelle and Paypal to report aggregate business transactions of $600 or more to the IRS. The previous threshold was $20,000.
"From $20,000 to $600 -- I'm just trying to figure out what kind of consumers they are trying to sort of catch," said Sofia Johan, an associate professor of finance at Florida Atlantic University.
Johan said the IRS is trying to bridge a tax gap of billions of dollars from lack of taxpayer compliance in reporting.
"Is it worth it to go after these players, or these consumers, who are generally transferring a few hundred dollars on a monthly basis, so I'm just thinking about the cost-benefit here," Johan said.
Will there be a differentiation of payments received from personal or business use? It is already obscure for even cash apps to discern when transaction memos are sometimes emojis.
"What they are trying to do is just have data available in the event they do identify certain taxpayers where their information may not necessarily tally up, so they will back up onto the cash payments," Johan said.
She advises those who run a business and use cash apps to keep a good record of all transactions that are taxable and those that are not. Making a separate account for business transactions is recommended.
"It can get complicated, and people make a lot of side hustles through it, and it'd be a shame to lose that small business aspect," Murphy said.
If you do fall into the $600 or more on income in cash apps, you will receive a 1099-K form.
Current tax law requires anyone to pay taxes on income of more than $600, but taxes do not apply to personal transactions like meal reimbursements.
