Do you get paid through Venmo or Cash App? A 1099-K is the form for you.
It was only a matter of time before the IRS made tax updates for third-party payment apps like Venmo and CashApp.
Before these apps came into our lives, we relied on cash for a lot of our transactions. We’d pay our roommates in cash for monthly rent, or we’d pay our friends back in cash after a night out. But now, third-party payment apps (aka Venmo, Cash App, and others like it) leave a digital trail for our transactions.
That’s where the 1099-K form comes in.
In 2023, the IRS will require these apps to send 1099-K’s to anyone who’s received over $600 in payments through these platforms.
Let’s dive into what the means for you during tax season.
This is a tax reporting change, not a tax increase.
Previously, the IRS required third-party payment apps to report transactions that had payments over $20,000 or over 200 transactions made in a year. Now, the threshold for reporting has decreased to $600, meaning there will be a lot more tax reporting in 2023.
It is important to note that this is not a tax increase. Meaning you won’t have to pay higher taxes. The law hasn’t changed.
Previously, folks who made over $600 in income per year were required to report that income — that law remains. You still need to report any income greater than $600. But now, you’ll be given a 1099-K for easier reporting.
A 1099-K is only needed for income.
Income is any money you’ve received for goods or services sold. For example: when you profit from a furniture flip on Craigslist, that counts as income. When your roommate pays half of the rent via Venmo, that does not count as income.
Some examples of payments that are not taxable include:
- Payments received for gifts like birthday or graduation presents
- Payments received from someone covering their portion of a restaurant bill
- Payments received for shared rent or utilities.
Here’s how the 1099-K form works.
Your third-party payment app will likely ask questions to make reporting easier. These questions might include your Employer Identification Number (EIN), Individual Tax Identification Number (ITIN), or Social Security Number (SSN).
By January 31st, you’ll receive a 1099-K form from each app you earned more than $600. The 1099-K will include gross income you’ve received in the prior year. That number won’t consider adjustments, discounts, or refunds, so it will be up to you to report only the income you’ve received from goods or services sold.
Preparation is key: keep records of your income.
If you have over $600 in third-party app payments throughout the year, your 1099-K will provide a gross income that includes taxable and untaxable money. It’s important to keep a record of the taxable money you receive. If you’re a gig worker, all the income you earn from your job is taxable, so tracking that throughout the year will help you during tax season.
Getting ahead with tax help early can help you stay on top of your taxes.