Do You Sell Items Online Via Ebay, PayPal or Cash App? You Might Want To Read This
A viral Facebook post is leaving you questioning whether or not you would have to report mowing someone's lawn for $20, or selling something on Marketplace for $40. Is this true? Will the Government actually require you to report income via PayPal, Venmo, and other cash apps?
Will you truly have to pay 30% back at the end of the year on any money received for goods/services on these apps? A post from Jake Spence on Facebook is causing eyebrows to raise:
Guess what got signed into law with those stimmy checks? You’ll now be taxed on the $20 you get from mowing a lawn and the $40 you got for selling something you never use on FB Marketplace.
Prior to Biden enacting this, you only had to report a 1099-K form if you received more than $20,000 TOTAL in one year through a single payment processor AND exceeded 200 total transactions. (Ex. Received $25k via PayPal AND had 200 deposits)"
The post goes on to say that if you use Venmo, PayPal, Cash App, Etsy, eBay, Shopify, or other cash style apps, you’re about to have to claim any money you receive thru those apps as taxable income in 2022 on a 1099-K form. It seems you won’t have a choice either, because the payment processors track it and the government is forcing them to send you and the IRS a form to report it.
According to The PWC, there is some truth to his Facebook post:
The American Rescue Plan Act of 2021 (the Act) significantly modifies the reporting threshold associated with Form 1099-K, Payment Card and Third Party Network Transactions, from $20,000 in aggregate payments and 200 transactions to solely a threshold of $600 in aggregate payments (with no minimum transaction requirement). The new rule is effective beginning with payment transactions settled after December 31, 2021."
In addition, the Act clarifies that third-party network transactions include only transactions for the provision of ‘goods or services.’ As a result, personal gifts, charitable contributions, and reimbursements are not included.
The reason for the change is that about 80% of the gig economy workers who earn less than $20,000 in a year from a company don’t receive a 1099-K.
This means thousands of gig workers are misreporting their incomes, which is resulting in misreported and/or underreported income.
According to Tax1099, reporting these transactions helps ensure tax transparency, which further helps the IRS generate revenue. You can learn more from the IRS website here.