Income Reporting: How To Avoid Undue Taxes While Using Cash App
The IRS recently introduced a new rule, effective January 1, 2022, that required all third-party payment apps to report business earnings of $600 or more to the IRS with a 1099-K form. That means if you sell anything and receive payment through PayPal, Venmo, Square (recently changed to Block) or other third-party payment platforms this year, you’ll receive a 1099-K form next winter. You will then need to declare that income on your tax return and potentially pay self-employment taxes on it.
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However, many people use PayPal and Venmo for P2P (peer-to-peer, or person-to-person) exchanges, such as sending a friend money for movie tickets or chipping in for a pizza.
You can ensure they won’t be taxed on those funds if you process the payment as a “family and friends” transaction. You can also choose Cash App to avoid accidentally processing a transaction as a business purchase.
How to Process Friends and Family Transactions through the Cash App
CashApp has two offerings:
The personal Cash App
Cash for Business
If you use Cash for Business, you will receive a 1099-K for any payments processed through the platform, regardless of the nature of the transaction or what it was for.
On the other hand, if you use only the personal CashApp — and make sure to only use it for money changing hands between friends and family to remain in compliance with IRS tax law — you won’t receive a 1099-K. There are no special settings to select to ensure your transactions are processed as personal exchanges.
How Square Is Different
It’s important not to confuse the business payment platform Square with either the personal Cash App or Cash for Business. Square offers payment services for small businesses, including the ability to take credit cards online or through a virtual terminal accessible from any web browser.
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If you have $600 or more in transactions processed through Square in 2022, just like Cash for Business, you will receive a 1099-K form and must report that income to the IRS.
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This article originally appeared on GOBankingRates.com: Income Reporting: How To Avoid Undue Taxes While Using Cash App