What Using Them Means for Your Taxes

(KMDL-FM) The convenience of invisible money. What better way is there to describe the transactions that millions of us make every day using money transfer apps like PayPal, Venmo, and CashApp? They make sending and receiving money between individuals and businesses quick, easy, and transparent.

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The use of money transfer applications works great when settling up a bill at a bar or when you want to contribute your share to a gift for someone at the office. But a lot of people in the “gig economy” use these cash transfer apps to conduct business transactions. For example, a club owner might Venmo a DJ or a musician their compensation for the evening.

Those transactions used to be cash only. In other words, they were invisible to the IRS and the Louisiana Department of Revenue. Guess who can see your transactions on Venmo, CashApp, and PayPal?

Money Transfer Apps Come with a Cost that Using Cash Doesn’t

Yeah, those transactions are subject to state and federal taxes. So if you provided a service or sold an item and you received payment via a money transfer app, Uncle Sam and his state-bound counterparts will be looking for you to report that money. Failure to do so is a violation of state and federal law.

Payment apps and online marketplaces are required to complete Form 1099-K each year. A copy of that form is sent to you and to the IRS. If you have a business that allows customers to pay you directly by credit, debit, or gift card, you should get that form directly from the company that processes your card, regardless of the number of transactions you’ve completed.

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The payment apps are required to send that same form to those of you in the gig economy if your payments topped $20,000 or the number of transactions was more than 200 in a calendar year.

What Money App Transactions are Subject to Being Taxed by the IRS?

Just to be clear, those money transfers you make between friends and family for gifts, personal debts, and repayments, and things like that, are not covered and do not need the tax form.  For example, if you split an Uber or a bar tab or sent money for a birthday gift for a nephew, that’s not what the IRS is looking for.

But almost all of those other transactions need to be reported. Think of it this way, if you made money on it, as in a profit. Then the IRS wants to know about that money. And since your money transfer provider is providing them a detailed list of your transactions, they already do. So, you’ve been warned. Just include those amounts in your tax return, and you’ll be fine. Oh, and don’t forget to tell your tax preparer about those extra dollars you made selling stuff online.