New tax law: Venmo, Cash App to report business transactions over $600
If you had a side hustle in 2021–whether it be selling homemade candles or walking your neighborhood dogs–this year’s tax filings may look a bit different for you.
Per last year’s American Rescue Plan Act, so-called peer-to-peer payment platforms like Venmo or Paypal will now have to report any person’s cumulative business income if it surpasses $600.
“The $600, that actually is a threshold for when the payer is required to give you a form 1099[-K],” said Dean Crawford, an accounting professor at SUNY Oswego.
Crawford said this $600 threshold only holds those platforms accountable for reporting to the IRS, but individuals who are conducting business whether it be through Cash App or Venmo should’ve been reporting their income from the get-go.
“When you do it, just remember you owe not just income tax, but if you do it for any length of time, you're also going to owe self-employment tax on that money as well,” he said.
Now some kinks are still being worked out. For instance–Venmo has the option to set up business profiles to easily distinguish between commercial and personal transactions. But nothing is stopping people from conducting business under a personal account.
Crawford also expects this to worsen the current backlog the IRS is facing in terms of getting people their returns.
“The IRS is way behind in their processing of returns right now,” he said.
Crawford said the pandemic really put a wrench in the IRS’ operations, causing a domino effect that’s expected to continue through this tax season.
“In the 50 years that I've been doing taxes, they have never had anything like what we are experiencing now,” he said.
Also, 2021’s increased Child Tax Credit is expected to both complicate filings for those who received the credit and perpetuate the IRS backlog.