ATLANTA, GA — How often do you pay your friends on apps like Venmo or Paypal? Do you receive some income through those money-sending websites, perhaps for some part-time work?
If you do, you want to pay attention.
That's because a major tax change involving those apps is in effect for 2022, which means when tax season begins in a few weeks, you could be in for some changes and headaches.
WHY THE CHANGE
Nothing is certain except death and taxes. Benjamin Franklin said that.
However, many in Washington remain frustrated with Americans who aren't fully reporting their income.
For years, Venmo, Paypal, Etsy, and others only reported transactions to the IRS when at least $20,000 was processed by an account user in a given year.
There had to be at least 200 transactions as well.
The figure changed to $600 in 2022 and can be triggered by just one transaction.
That is a significantly lower amount.
The change was made by President Joe Biden when he signed The American Rescue Plan last year and is designed to catch some Americans who are not fully reporting their income.
Many Americans, from photographers to barbers, have been getting paid through these apps for years.
While there is a push to delay it, so far, that has not passed on Capitol Hill.
WHY TAX PROFESSIONALS ARE WORRIED
"What's going through my mind is we are going to have some difficult times come January 2023," said Andrew Poulos, a tax professional in Atlanta.
He says this upcoming tax season will be the first time a 1099-K form detailing with these transactions will be sent to so many Americans.
You may get one.
A copy of that form will be sent to the IRS too.
The IRS is only interested in income and cannot tax you for transactions that were a gift. The IRS can't tax you for a friend sending you money for a pizza you bought them.
However, there are questions about how accurate these 1099 forms will be.
"How will these payment sites differentiate that from actual income sent on Venmo or Paypal," our political correspondent Joe St. George asked Poulos.
"That’s the problem right there," Poulos said.
"Most people have never heard of a 1099," Poulos added.
Poulos says that is why so many tax professionals are uneasy right now. He is concerned something may be classified incorrectly on the 1099, creating tax headaches.
As a result, you should be prepared to prove that something was not income.
"If you receive a 1099 form, don’t ignore it, don’t throw it away," Poulos said.
Of course, if you actually did receive some income via Venmo or Paypal last year, now is the time you should take steps to prepare to pay your fair share.
"Does this change make it easier for the IRS to catch people who haven’t been reporting money?" St. George asked.
"Absolutely," Poulos said.
