Venmo, CashApp and PayPal Users Beware: The IRS is Watching

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Over the last decade, digital payment services like Venmo, CashApp and PayPal have become enormously popular. These apps allow users to users to handle interpersonal transactions with the ultimate level of convenience. Whether you’re reimbursing a co-worker for picking up lunch, splitting rent with your roommate, or buying a piece of used furniture you found on Facebook Marketplace, these applications just make life easier.

Unfortunately, revenue-collecting interest from the IRS is about to make things complicated. Until the 2022 tax year, these payment providers were only required to issue a 1099 when users exceeded $20,000 transactions rendered for goods and services in the given tax year. Things have changed. Effective January 1, 2022, all third-party payment services will now be required to issue a 1099-k outlining any such payment in excess of $600 during the calendar year. Now, this rule technically only applies to transactions marked for goods and services, but much of the burden of proof regarding whether the income should be reported as taxable now rests on the user.

So, if you sent your roommate $900 to cover your half of the rent, or if you send your grandson $1,000 for Christmas, it will be important to review any 1099 you receive to ensure that the transaction is coded correctly. In the case of an audit, a transaction that should have been coded as a gift or reimbursement could potentially be reflected as a taxable transaction and that is certainly something you’ll have wanted to avoid on the front-end.

The IRS encourages taxpayers that receive a 1099 in error to reach out to the provider for a correction. In the case that the provider cannot or does not do so, you must attach an explanation to your return detailing the circumstances of the error.

As previously stated, this is a new requirement for 2022. There are bound to be errors in reporting by all parties. Our advice? Be vigilant, avoid payments in excess of $600 on these platforms to the extent another route is available, and if you are unsure about the accuracy of any tax documents you receive, do not hesitate to consult with your tax preparer.

Wade Buffington

Wade Buffington

Wade serves as a Financial Planner for High Net Worth clients. He joined Buckhead Capital in August 2020. Previously, he provided financial plan preparation, execution, and portfolio management for High Net Worth clients with TrueWealth Management in Atlanta. Wade holds a B.B.A. in Finance from the University of Georgia and completed the Certified Financial Planner (CFP®) Certificate Program through the University of Georgia’s Terry College of Business.