February 25, 2022 Uncategorized

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If you are like the millions of people who use third-party payment apps like Venmo, Zelle, and Cashapp for your income, you need to know about an important tax change that will impact the way income is reported to the IRS. Small business owners, side hustlers, independent contractors, and freelancers take note! Understand what these Zelle and Venmo tax changes will mean for you and your money. 

What you need to know about the 2022 Tax Changes for Payment Apps

As of January 1, 2022, third-party payment network providers will be required to report annual commercial transactions of $600 or more to the Internal Revenue Service. What that means is this: If you pay for or sell $600 worth of goods and services through a third-party payment network, such as Venmo, or CashApp, these payments will be reported to the IRS as of 2022.

This tax code change was signed into law as part of the American Rescue Plan Act, the Covid-19 response bill passed last March. Prior to this bill, mobile payment apps were required to report to the IRS only when someone had over 200 commercial transactions per year that exceeded $20,000 in total value. So, it’s a pretty big change for these companies and the people who use them as their payment source.  

Until now, taxpayers held the responsibility of reporting any and all income collected via apps like Zelle and Venmo. Going forward, the IRS will require these third-party platforms to automatically generate the tax reporting to the IRS and supply you with the 1099-K form for your records. You won’t have to worry about how this rule will impact your 2021 taxes – it won’t. You’ll see these changes when you prepare to file your taxes next year for the 2022 year. Start keeping track of how you are using these third-party apps this year so you know what to expect when next year’s tax season comes around.  

Also, for my eBay sellers and seasonal hustlers, according to the IRS, these changes also apply to people who sell items on internet auction sites like eBay and people who “have a holiday craft business” so long as they accept credit card payments through these apps. If you are getting over $600 for the goods or services you sell, you’re going to get a 1099-K form in the mail next year. 

Your 1000-K form will report the total gross income you received during the year. This won’t include refunds, discounts, and adjustments made after. Your Form 1099-K will include payments from credit cards and online payments, and you will be required to report any income from your business on your income tax return. 

Can I still use Zelle and Venmo to send money to friends? 

A big question that many of the women in my community are wondering is whether or not more casual, non-commercial transactions are on the list for automatic reporting to the IRS. Rest assured, personal charges to friends and family – like splitting a dinner bill or chipping in on movie tickets – will still be reported by these vendors (they don’t know the difference on your behalf) but they are classified as non-taxable* income. 

Other types that are also exempt:  

  • 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

If you’re a business owner, you can easily separate and track these two functions by setting up totally separate third-party payment accounts for your business and personal transactions.

*Important to note: even though this new law requires new tax reporting requirements, it does NOT change the existing tax law in terms of what is taxable or nontaxable for tax reporting.  All non-taxable money received does not need to be reported on your tax return. Also, if you sell personal items at a loss (for example, you sell a couch for $100 that you bought for $500), the amount is non-taxable income. When it comes down to it, your own reporting to the IRS should match what others are reporting. So, leaving your apps unattended will create a bigger potential headache when you go to file taxes.  Now is a good time to get organized.

Sheer numbers alone indicate that these tax changes will impact a huge number of people – most of which fall into a pretty young demographic. Over 50 million people use Venmo in the United States and 50 percent of users are between the ages 25 to 34. 

Filing taxes can be confusing no matter what Zelle and Venmo tax changes are in effect. I’m here to help you navigate these money matters, so don’t hesitate to reach out. If you’re looking for a supportive group of women to help you achieve your money goals this year, join mine. If you are looking for help getting your $hit together or learning how to invest your money going forward, sign up for my next GIT Elevated Money Course today. 

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