JOHNSON CITY, Tenn. (WJHL) — The IRS announced it will be taking a closer look at transactions across cash apps.
Business owners using cash apps such as Venmo, Zelle and Cash App should be reporting their income to the IRS. However, under the American Rescue Plan, the apps are now required to send 1099 K forms to users who meet certain qualifications.
“These cash apps are now going to issue 1099 Ks,” said Alyssa Reed, a tax associate at Blackburn, Childers & Steagall, CPAs. “They’re going to be issuing them if you have more than 200 transactions and more than $20,000 in income, so they’re going to be issuing them and giving you a copy and a copy to the IRS.”
The IRS and federal government are doing it to crack down on businesses avoiding taxes through the app.
“So what the IRS does with it is they’re going to look and say if you got 20,000 in deposits through your Venmo, then you should be claiming at least 20,000 is income on your tax return,” said Reed.
That threshold of $20,000 will drop to $600 on Dec. 31, 2021, and there will be no minimum of 200 transactions.
It is important to note the limit only applies to taxable payments.
“So on Venmo, you might have a personal account or a business,” said Reed. “The personal [account] is for paying friends back for dinner, and that’s not going to be taxable. The business account is what they’re going to start issuing those 1099 Ks.”
If you’re using the apps for business Reed said to be sure to keep your personal and business accounts separate.
Reed said while the apps will report the income to the IRS, they aren’t keeping receipts so you will need to keep your own detailed receipts of your transactions for tax time.
“Be organized, keep your documentation and you know if it really is business income, you really need to pick it up on your tax return,” said Reed.
