What Venmo and Cash App Users Need to Know About New Tax Rules

Mobile payment apps such as Venmo and Cash App have become more popular in recent years, particularly with small business owners. Transactions can be simple, making it easy for entrepreneurs to get paid for their goods or services.

Starting this year, however, the simplicity of these apps have slightly shifted. New rules begin with the 2022 tax year due to the American Rescue Plan Act, and they could have an impact on the taxes you might have to pay on the gross income of your business.

Here are some details on what Venmo, Cash App, and other payment app users need to know.

Why things changed

The changes to tax laws affecting cash apps were passed as part of the American Rescue Plan Act in March 2021. The bill, which cost $1.9 trillion, was designed to help stimulate the economy in the wake of the coronavirus pandemic. It included funding for things such as unemployment benefits and the Child Tax Credit, as well as money for state and local governments, schools, and COVID-19 testing and vaccines.

The rules only affect businesses

You don’t have to panic if you aren’t using these apps for business purposes. Splitting a dinner bill with friends or sending a gift to a family member is totally fine and not taxable. Also, if you are a customer buying goods or services with an app like this, you don’t have to worry about reporting those transactions to the IRS.

Reporting falls on the business owner — they are responsible for keeping a record of transactions and paying taxes on them.

The minimum for reporting has been drastically lowered

In previous years, you had to hit a minimum of $20,000 in sales and more than 200 transactions (in most states) in order for a cash app to create a Form 1099-K for a business. When filing your 2022 taxes and beyond, there is a minimum of $600 in income and no minimum transaction requirement.

For example, if you decided to start an Etsy shop and you sell one item for more than $600 and get paid with a cash app, that will likely generate a Form 1099-K for your business.

Cash apps will send Form 1099-K

Your transactions are likely going to be compiled by each cash app you use as part of your business, and these apps should send you a Form 1099-K. This is a form used by the IRS to track payments earned by cards with third-party payment transactions, such as Venmo, Zelle, and other cash apps.

It affects businesses big and small

It doesn’t matter if you run a small business full-time or you just have a side hustle to make some extra money. If you are using cash apps to help you with transactions for any kind of goods or services, you should check on whether these new tax laws may affect your gross income from these cash app transactions.

Sales you make at weekend craft shows will count the same as sales another person makes as a full-time business owner. As long as the total earned from these transactions is more than $600 in 2022, they count.

It affects all cash apps

These new rules require all cash apps to report business income over $600 per business. So if you’re trying to find a cash app that will allow you to not report your taxes, you may be out of luck. Also remember that if you use multiple cash apps, you should expect a Form 1099-K from each of them with your reported gross income if it’s more than $600.

These new tax rules begin in 2022

Remember that this is for 2022 income that might appear on the tax returns you will file next year in 2023. This doesn’t affect the tax returns you may currently be calculating for 2021 that are due in April of this year.

Bottom line

If you’re learning how to make money with a small business, remember that you may have to report income from transactions using a cash app. With the new rules affecting 2022 income, now is a good time to make sure you’re ready for the changes.

You may want to verify that your taxes are being accounted for correctly and check your business profile on the cash apps you use to see if your information is up to date. That should make it easier to get your information in order when it comes to filing your 2022 taxes.

Many people choose to simplify the tax season for themselves by using some of the best tax software. You may also consider checking with a business accountant to see if you need to adjust how to account for transactions in anticipation of the new laws. If you are still deciding whether to use a cash app for your business, read our Cash App vs Venmo comparison.