New year, new tax obligations. The Internal Revenue Service (IRS) is cracking down on payments made through third-party applications such as Venmo, PayPal, and Cash App in order to guarantee that consumers who use these services pay their fair amount of taxes. Coincidentally, these platforms also support bitcoin purchases. The team of “The Hash” talks about legislation, customer privacy, and the impact on small enterprises.
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If a user’s business transactions surpass $600 in a year, a tax rule that goes into effect in January will oblige third-party payment processors like PayPal, Venmo, and Cash App to disclose them to the Internal Revenue Service. A firm or individual must file Form 1099-K with the IRS to record goods and services payments received throughout the calendar year. Payments received for goods and services transactions are subject to the $600 rule. If you sell more than $600 worth of things on Etsy or eBay, for example, you will receive a 1099-K form.
“You may notice that in the coming months, if you haven’t already, we will ask you for your tax information, such as a social security number or tax ID, in order to continue using your account to accept payments for the sale of goods and services transactions and to ensure there aren’t any issues when these changes take effect in 2022,” PayPal writes in a blog post. The message reads, “This helps us meet our duties to the IRS and assures that you will be able to use your account and access PayPal and Venmo features and services.”
“PayPal and Venmo both offer a mechanism for consumers to tag their peer-to-peer (P2P) transactions as either personal/friends and family or products and services by selecting the appropriate category for each transaction,” according to PayPal.
“Whenever users are sending money to another user to purchase an item, such as a couch from a local ad listing or concert tickets, or paying for a service, they should select Goods and Services,” PayPal added.
For this year’s transactions, you will receive the paperwork beginning next year. The form will be needed to complete your taxes for the year 2022, which are due in April 2023. It does not apply if a person is using the service to send a gift or reimburse someone for a dinner purchase. Some payment providers claim that they will want more information about transactions in order to determine which category the transactions belong to.
Additionally, if you sell something at a loss, such as a $400 bike that you sold for $300, the sum is not subject to the new regulation. When the American Rescue Plan was passed in March 2021, the adjustment was made.
