Video: PayPal and Venmo Taxes: Tax Rules and 1099-K Form Explained
CPA and TurboTax tax expert Lisa Greene-Lewis is here with the rules around third-party cash apps and the forms you'll need for tax filing.
The IRS planned to implement changes to the 1099-K reporting requirement for the 2023 tax year. However, the IRS recently delayed the implementation of the new $600 reporting threshold for transactions from third party processors like Venmo and Paypal, reverting tax year 2023 back to the previously higher 1099-K reporting threshold (over $20,000 in payments and more than 200 transactions).
However, some individual states have already begun to use the lower reporting threshold. Maryland, Massachusetts, Vermont, Virginia and the District of Columbia have a $600 threshold for requiring 1099-K in effect for 2023. North Carolina and Montana also have a $600 threshold, although state tax officials have said these states may offer relief. If you don’t receive a 1099-K, the IRS still expects you will report all your income, regardless of the amount.
[MUSIC PLAYING] TRACY BYRNES: Lots of people using third party payers these days, PayPal, Venmo, all these cash apps out there. So what are the tax rules surrounding all this? And what's this 1099-K form that you got in the mail? Lisa Greene-Lewis CPA and TurboTax expert is here to explain all of it. So first of all, what's this 1099-K?
LISA GREENE-LEWIS: So a 1099-K is a form that third party providers issue to you if you've had 200 transactions and made $20,000 that have been processed through them. So the change in the reporting rules are going to come in tax year 2022. And it's going to go down substantially. They're going to be reporting if you made 600 or more that was processed through them.
TRACY BYRNES: So in 2022, $600 or more will be reported.
LISA GREENE-LEWIS: Right.
TRACY BYRNES: That is crazy. And that's going to affect a lot of people. Obviously small businesses, but who exactly does this impact?
LISA GREENE-LEWIS: Yes, so this new reporting role, it impacts self-employed or business owners that use those third party providers I know a lot of people, there's so many questions out there. They're wondering, oh if I pay my friend through Venmo for dinner or if I pay my kids, send money to them through Venmo or PayPal, am I going to get a form? But it's really for self-employed business owners.
TRACY BYRNES: If I'm a self-employed person though, Lisa, sometimes money comes in, money comes out. It's so hard to keep track. What should I do?
LISA GREENE-LEWIS: So have you use TurboTax Self-employed, it will ask you specific questions about you and your business and give you the business deductions that you're eligible for. And then it also searches for industry-specific deductions. I know there are so many new industries out there. So it uses machine learning and AI. And it gets smarter. And it learns industries and serves up these specific deductions directly related to your business. So don't forget about those deductions related to your business. They can offset that income that's reported on the 1099-K.
TRACY BYRNES: So you can at least bring your tax bill down. Lisa Greene-Lewis, thank you for explaining it all.
LISA GREENE-LEWIS: Thank you for having me. [MUSIC PLAYING]