Payment of $600 or more must be reported to the IRS.
A new rule went into effect this year, which means that if you have your own business or use a digital app, you should be aware of it.
Earnings over $600 will be reported to the IRS. The final draft of the American Rescue Plan had this provision in it. Transactions received for goods or services over $600 are reported by each third-party payment processor. They have to report all the commercial income they collected through the app if the threshold is reached.
When a person had over 200 commercial transactions in a year that exceeded $20,000 in total value, these mobile payment apps had to tell the tax authorities.
The tax-reporting change only applies to charges for commercial goods or services. It doesn't include personal charges to friends and family. It doesn't apply to your taxes in 2021.
What does this mean for you? You will have an extra form in your taxes if you use apps like Venmo, Cash App and PayPal to make payments. The rule change should be technical. You have to report all income.
If you are a self-employed person, you should pay taxes on your total income even if you receive a check or pay through an app. This isn't a change in how your income is taxed, but a reporting change. If you earn $600 or more annually in income for goods or services and get paid through one of these third-party payment processors, you will receive a tax form called a 1099-K every year. If the account is used for business or personal use, this form might include nontaxable transactions.
If you want to make your accountant's job easier, it's a good idea to create separate personal and business accounts on these apps.
Disclosure: CardRatings is a partner of Miles to Memories. Card issuers may give a commission to Miles to Memories and Card Ratings.
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