Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors’ opinions or evaluations.
If you receive $600 or more payments for goods and services through a third-party payment network, such as Venmo, or CashApp, these payments will now be reported to the IRS.
Beginning Jan. 1, 2022, third-party payment network providers will be required to send users a Form 1099-K, Payment Card, and Third Party Network Transactions for transactions made during the 2022 tax year by mail or electronically. The new tax reporting requirement will impact 2022 tax returns filed in 2023.
The new rule is a result of the American Rescue Plan. The $1.9 trillion stimulus package was signed into law in March by President Joe Biden, which changed tax reporting requirements for third-party payment networks.
And while this rule applies to most third-party payment networks, Zelle said it’s not subject to this law.
The law says that only third-party payment companies that handle the settlement of funds (a process of transferring funds from a buyer to a seller in a transaction) are required to send 1099K forms to users.
Early Warning Services, LLC, the network operator of Zelle, said in an email statement that Zelle doesn’t settle funds but rather provides messaging between a financial institution and people making the payments.
Before implementing the law, the IRS required reporting if payments exceeded $20,000 or more and more than 200 completed during the year.
Here’s how the new tax reporting will work.
New Cash App Tax Reporting for Payments $600 or more
Under the prior law, the IRS required payment card and third party networks to issue Form 1099-K to report certain payment transactions that met the following reporting threshold:
- Gross payments that exceed $20,000, AND
- More than 200 transactions within the current year
The new law would require users to receive Form 1099-K for payments of goods and services over $600 without any needed minimum transaction, which means more people will receive the forms.
Understanding your Form 1099-K for Cash App Tax Reporting
You will receive a Form 1099-K from third-party networks or financial institutions for income received through electronic forms of payments by Jan. 31 of the following year.
In the near future, your third-party provider may request additional information from you to properly report your transactions on the Form 1099-K. You may be asked to provide your Employer Identification Number (EIN), Individual Tax Identification Number (ITIN) or Social Security Number (SSN) if this information is not on file.
Your Form 1099-K will report the total gross income in Box 1a received during the year without considering any adjustments, discounts, or refunds.
Your Form 1099-K will include payments from credit cards and online payments. You are required to report any income listed on your Form 1099-K from your business on your income tax return.
Does Venmo, CashApp and Other Third Party Network Users Have to Pay a New Tax?
While this new law requires new tax reporting requirements, it does not change the existing tax law, meaning taxable or nontaxable for tax reporting.
Form 1099-K is an informational tax form and may include amounts considered excluded from gross income for tax purposes.
If you receive money considered a nontaxable source, you will not need to report on your tax return.
Some examples of money received that may be excluded from your income are:
- Money received from a friend as a reimbursement
- Money received from a roommate to pay their share of the rent
- Money received from a loved one as a gift
Also, if you receive money from selling a personal item at a loss, you are not required to report the amount on your tax return. For example, if you purchased a dress for $100 and sold it for $50, the amount is not taxable.
But while it does not create a new tax, you must keep good records of any taxable income received.
How to Keep Good Records for Cash App Reporting
Since your Form 1099-K may include both taxable and nontaxable income, keeping good records is essential.
While you may choose any recordkeeping system for your business, you want to select a system that reflects your income and expenses. Your system should include:
- Accounting and payroll records.
- Bank statements.
- Tax forms and returns.
- Other business financial records.
You can consider saving your records either in electronic form or manually.
If you are a business owner, it is a good idea to set up separate third-party payment accounts for your business and personal transactions. This way, you can easily track business transactions.
Also, setting up a separate business platform and keeping good records can be beneficial to prove both taxable and nontaxable income sources if the IRS audits your tax return.
Featured Partner Offers
Federal Filing Fee
An EY tax professional will file for you
Receive a fast, free, no-obligation quote