This story is a part of Taxes 2022, CNET’s protection of the very best tax software program and all the pieces else that you must get your return filed rapidly, precisely and on-time.

When you’ve got a aspect hustle, freelance or are self-employed, and earn cash via digital apps like PayPal, Money App, Zelle or Venmo, the IRS desires to find out about it. Whereas it’s best to pay estimated taxes all year long on freelance earnings — no matter whether or not it is from a fee app or direct deposit — there is a new tax reporting legislation that it’s best to find out about.

Initiated in January of this yr, this new regulation requires digital fee apps to report a person’s earnings over $600 to the IRS, as a provision of the 2021 American Rescue Plan. 

What does this imply for you in the event you’re steadily paid by way of PayPal, Venmo or one other third-party processing app? We’ll stroll you thru what’s modified and debunk a couple of myths alongside the best way.

Truth: Cost apps might request tax info from you

Now that this new legislation is in impact, fee apps like PayPal might attain out to you to substantiate tax info, corresponding to your employer identification quantity, particular person tax identification quantity or Social Safety quantity. For those who personal a enterprise, you almost certainly have an EIN, however in the event you’re a sole proprietor or particular person freelance or gig employee, you will present an ITIN or SSN. 

Fiction: This can be a tax change

It is not a tax change; it is a reporting change. For those who’re self-employed, it’s best to already be paying taxes in your complete earnings, no matter the way you obtain your funds for items and companies. The brand new laws will not be a tax change: It is a tax reporting change so the IRS can preserve tabs on transactions made via fee apps that always go unreported. 

Previous to this laws, third-party fee platforms would solely report back to the tax company if a consumer had greater than 200 industrial transactions and made greater than $20,000 in funds over the course of a yr. 

Going ahead, third-party fee firms will challenge you a 1099-Okay tax kind annually in the event you earn $600 or extra yearly in earnings for items or companies. This tax kind may embrace taxable and nontaxable transactions, significantly if the account is for each enterprise and private use. 

The IRS may also obtain a duplicate of the tax kind and will not be relying purely on self-reporting. “The IRS will be capable of cross-reference each our report and yours,” PayPal famous in a assertion in November.

To make managing your online business funds simpler, we advocate creating separate PayPal, Zelle, Money App or Venmo accounts on your skilled transactions.

Truth: Objects bought for a revenue on Fb Market will probably be taxed — however private belongings bought at a loss will not be.

For those who promote private objects for lower than you paid for them and accumulate the cash by way of third-party fee apps, this new laws will not have an effect on you. For instance, in the event you purchase a sofa on your dwelling for $500 and later promote it on Fb Market for $200, you will not owe taxes on the sale. That is as a result of it is a private merchandise you’ve got bought at a loss. Nonetheless, chances are you’ll be required to indicate documentation of the unique buy to show that you simply bought the merchandise at a loss.

However, when you have a aspect hustle the place you purchase objects and resell them for a revenue by way of PayPal or one other digital fee app, then earnings over $600 will probably be thought of taxable and reported to the IRS. 

Ensure to maintain a great report of your purchases and on-line transactions to keep away from paying taxes on any nontaxable earnings — and when doubtful, contact a tax skilled for assist.

Fiction: The IRS is taxing cash you ship to household and mates

Rumors have circulated that the IRS was cracking down on cash despatched via third-party fee apps to household and mates, however that is not true. Private transactions involving items, favors or reimbursements aren’t thought of taxable. Some examples of nontaxable transactions embrace: 

• Cash obtained from a member of the family as a vacation or birthday reward
• Cash obtained from a good friend masking their portion of a restaurant invoice
• Cash obtained out of your roommate or associate for his or her share of the hire and utilities

Extra tax recommendation

• State Tax Rebate Replace 2022: These States Are Sending out Checks This Week
• Gross sales Tax Holidays: These four States Are Pausing Gross sales Taxes This Week
• Costs on the Pump Are Down, However These eight States Have Raised Their Gasoline Tax

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