Cash App Payment
For tax returns for calendar years previous to 2022, the Housing Assistance Tax Act of 2008 requires payment settlement entities (PSEs) to report on Form 1099-K the following transactions:
- All payments made to settle payment card transactions (credit card, debit card, etc.);
- Payments in settlement of network transactions with third parties IF:
- gross payments made to a participant exceed $20,000; AND
- More than 200 transactions have occurred with the participating payee.
For tax returns for calendar years beginning after 2022, the American Rescue Plan Act of 2021 (ARPA) requires PSEs to report the following transactions on Form 1099-K:
- All payments made in settlement of payment card transactions (e.g., credit card);
- Payments in settlement of third-party network transactions if gross payments to a participating payee exceed $600, irrespective of the number of transactions with the payee.
For transactions occurring after March 11, 2021, ARPA states that Form 1099-K reporting by third-party settlement organizations is limited to transactions for the provision of goods or services resolved through a third-party payment network.
Cash APP Payment
On one occasion, you and your friend dined out and agreed to split the bill. Instead of settling with cash, you and your buddies utilized PayPal, Venmo, or a cash application.
If you utilize cash applications to send or receive money for purposes other than business transactions beginning in the year 2022, you should be aware of the following.
Why is this type of reporting now required under the law?
Internet payment, online purchasing, and web payment have expanded dramatically in the digital age. IRS restricted certain types of transactions to voluntary compliance for tax reporting and tax liability determination.
Do the above transactions attract any tax matter?
Might or might not be. If the money transaction has been appropriately categorized, you need not be concerned. If not, you will receive a Form 1099-K, Payment Card and Third-Party Network Transactions, at the end of the year. Form 1099-K is an information return used to report cash transactions to the IRS and to yourself.
If the payment is appropriately designated as other than services and products at the time of payment, you should not get a 1099-K. If the Payer categorized the payment as connected to goods and services (intentionally or unintentionally), you should receive Form 1099-K by January 31 of the following year if the total payment from the cash provider exceeds $600.00.
To minimize year-end complications, ensure that your friends and relatives select the correct payment category.
What to do when you receive Form 1099-K ?
If a payment is designated as related to goods and services and the total payment is over $600.00, the payee will get Form 1099-K. The cash app supplier must produce the 1099-K form by January 31, 2019.
If you do not pay attention to the category of payment while making / receiving payment, it is quite difficult to correct the error after receiving form 1099-K.
Upon receiving form 1099-K, if the category of transaction is unrelated to goods or services, you must either (1) contact the cash app provider to correct the error and obtain a new form 1099-K, or (2) include the amount you got as income and pay tax on it.
The payee will get a Form 1099-K by January 31 from the cash app provider if the payment is designated as related to goods and services and the total amount exceeds $600.00.
If you find yourself in this predicament consult Sure Financials and Tax Services LLC and IRS's Frequently Asked Questions for information on how to rectify it.
