Weber Gallagher’s Family Law Group often reviews payments made through popular mobile apps, including Venmo and Apple Pay, in discovery and for support purposes. Clients who utilize one of the many mobile payment platforms available to pay for services and goods assist attorneys in keeping accurate and timely records of such payments.
For instance, if the babysitter is ready to leave after a long night, a client can send money to the sitter instantly via Venmo. Or maybe a client wants to buy something on Etsy for one of the kids. The buyer can go on Apple Pay and, voila, the seller has the money, and the buyer has a gift. Well, the Internal Revenue Service (IRS) now wants to get in on the action. Beginning January 1, 2022, all mobile payment apps, including Venmo, PayPal, and Cash App, must report annual commercial transactions of $600 or more to the IRS.
The change to the tax code was part of the American Rescue Plan Act passed in March 2021 and will have a drastic impact on how people do business. This was a dramatic change from when the IRS taxed mobile payment apps only if there were 200 commercial transactions per year and the amount exceeded $20,000 in total value.
The IRS delayed the implementation of the lower reporting threshold of $600 for goods and services transacted through third party vendors such as Venmo and PayPal to 2023. Regular users of P2P payment platforms will receive a 1099-K which must be reported to the IRS. It is important to note, even if the P2P does not issue the 1099-K you must still report for income tax purposes all transactions for goods and services over the $600 threshold as income. Keeping detailed business records, including invoices, may assist in reducing the taxable income. Venmo transactions alone, even if earmarked, will not be enough to show the transaction was for a legitimate business purpose worthy of a deduction. Individuals who use Venmo to divide the cost of a meal or bills for an apartment will not be issued a 1099 since these types of transactions are not considered income. Careful recordkeeping, properly identifying business related expenses and utilizing P2P platforms amongst friends are the key elements to making sure your transactions are not taxable.