If you are a sole proprietor, gig worker, Facebook Marketplace seller or have some other side hustle, get ready to receive tax forms at the end of 2022 if you accept payments through an app like Venmo, PayPal or CashApp.
Beginning with income earned this year, if you receive more than $600 in payments electronically through one of these payment processors, you will receive a form 1099-K detailing the income. The processors will also file the form with the IRS. All of your income has always been taxable, and potentially subject to self-employment tax. The 1099-K reporting will help the IRS find those who have been underreporting their income.
Before now, the IRS required processors to report when a seller had more than 200 transactions a year or payments exceeding $20,000.
How will the IRS be able to distinguish if the money you received was a payment for goods or services you sold, or say a gift from a loved one? Perhaps your easiest solution is to have two accounts: one for professional or business transactions and one for personal exchanges of money. Keeping separate records is also always an option.
Be aware that your payment app may be reaching out to request tax information such as an Employer Identification Number (EIN) for your business, or your individual tax ID or Social Security number.
Our tax and advisory team is ready and able to partner with you this Spring. Contact Alloy Silverstein for guidance on your specific situation.
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