Guide 2022: You will not pay more taxes for transactions through financial applications
If you are a small business owner that receives income through transactions through financial applications such as PayPal, Cash App or Venmo; or you are self-employed and get paid through these platforms, you should already know that any earnings over $600 will now be reported to the IRS in 2022.
The new guidance is part of a provision in the 2021 American Rescue Plan, which took effect Jan. 1, that directs third-party payment processors to report to the IRS transactions received for goods or services totaling more than of $600 per year, reported Telemundo47.
However, rumors and inaccurate data prevail on social networks, as there are those who assume that the provision implies paying more taxes or that the tax agency monitors each transaction, including personal ones. No, the IRS does not review how much you pay for dinner with friends or your share of the rent if you share a flat.
New guideline in 2022
Prior to this legislation, a third-party payment platform would only report to the tax agency if a user had more than 200 business transactions and made more than $20,000 in payments over the course of a year.
It is important for taxpayers to understand that the new provision does not apply to 2021 taxes, which are filed this filing season, beginning January 24. The rule will be effective for the earnings that a taxpayer obtains throughout 2022, which he will report when he files his return in 2023.
Payment apps may ask for tax information, such as your employer identification number, ITIN, or Social Security number. If you are a business owner, you will most likely have an EIN, but if you are self-employed, you will need to provide an ITIN or Social Security number.
In 2022 the way of reporting to the IRS changes
If you own a small business or are self-employed, you should already be paying taxes on your total income, regardless of how you receive payments for goods and services. Therefore, the new legislation does not impose more or new taxes on those earnings, it only changes the way current taxes are reported so that the IRS can more efficiently and transparently control transactions made through payment applications that are often not declared.
This means that the platforms will give you a 1099-K tax form at the end of the fiscal year if you earn $600 or more in income from goods or services. This tax form may include taxable and nontaxable transactions, especially if the account is for business and personal use. That's why the tax agency advises creating separate PayPal, Zelle, Cash App or Venmo accounts for professional and personal finances.
The IRS will also receive a copy of the tax form you get at the end of the tax year, but may check records beyond the form.
“The IRS will be able to cross-reference both our report and yours,” Paypal warned in a November 2021 press release.
Author: MiamiDiario JM 1:28 pm