WEST PALM BEACH, Fla. — The outrage of the week is that the Internal Revenue Service has designs on taxing every cash app transaction over $600. This is largely false.
1. How cash apps work
For the uninitiated, cash apps such as Venmo or PayPal allow for people to send cash from their bank account to a recipient through a mobile phone.
"From splitting restaurant checks to paying rent to roommates, the words 'I'll Venmo you' have become increasingly commonplace," according to a report from PolitiFact.
2. What does the new law actually say
The American Rescue Plan Act passed in March requires cash apps like Venmo, PayPal and Zelle to report commercial transactions over $600. Previously, those business transactions were only reported if they were more than $20,000. The IRS wants to crack down on businesses that use cash apps as a way to circumvent banks and traditional forms of reporting income.
3. The new rule only applies to business transactions
Yahoo News reportsthat in the past sellers on Etsy and eBay were able to go undetected in terms of how much income they were making through cash apps. Going out to dinner, reimbursing someone for concert tickets, rent or utilities does not count as income so don't sweat the new requirement.
4. The IRS will be sending out 1099-K forms
If you receive more than $600 on any cash app, the IRS will send out this form. But for most users, nothing will need to be done at all. The new reporting rule only applies to business transactions and seller of services, Yahoo reports. If you sell something or provide services to someone in exchange for money, you will need to use Form 1099-K to report this income.
This March 10, 2015, file photo, shows signage outside PayPal's headquarters in San Jose, Calif. PayPal said on Tuesday, April 5, 2016, it's canceling plans to bring 400 jobs to North Carolina after lawmakers passed a law that restricts protections for lesbian, gay, bisexual and transgender people. (AP Photo/Jeff Chiu, File)
5. Businesses owners who use cash apps need to be vigilant
No matter how small your business might be, it is a good idea to report all income to the IRS. If your income is fairly low, it's unlikely you will not owe any taxes at all, Yahoo reports.