What can I do to make sure I don’t get a 1099-K?

After a night out with friends, some of whom didn’t come with cash (been there, don’t do that anymore), the group decides that one person pays and the rest will send their share of the meal (plus the tip) on Venmo. Here’s where you need to pay attention to how the money is reported on the app. Make sure your payments are properly classified as an amount paid for something other than goods or services, Bronnenkant says. If you want to minimize the chance of an error, be sure to make note of what the payment was for and to whom. Additionally, on sites like PayPal and Venmo, you can designate whether a payment is to family and friends or a business transaction for goods and services.

What if I have a side hustle but just ask everyone to pay me via my personal account on the apps?

Using cash or Zelle avoids 1099-K reporting. Early Warning Services, the network operator behind Zelle, said in an emailed statement, “Payments between friends and family, and eligible small businesses sent through the Zelle Network are not subject to this law because Zelle facilitates messaging between financial institutions, but does not hold accounts or handle settlement of funds.” But Bronnenkant encourages taxpayers to report all of their taxable income “regardless of the payment method or whether a tax form is generated.” PayPal, which owns Venmo, says it will monitor accounts to ensure that personal payments are not being used for the sale of goods and services.

What if a payment app mistakenly sends me a 1099-K after a meal with friends?

The law is clear that money received as a gift or reimbursement of a share of a meal should not be reported on a 1099-K. But mistakes will happen. After getting an incorrect 1099-MISC about seven years ago, I know it can be time-consuming and frustrating to clear up such matters with the IRS. For taxpayers who may have already received a 1099-K due to the statutory changes, the IRS said it’s working “to provide instructions and clarity so that taxpayers understand what to do.” If you erroneously receive a 1099-K, you will have to contact the payment app company to request they send a correction to the IRS. “I hope they strike the right balance of giving taxpayers the ability to reclassify transactions while staying true to the goals of the enhanced tax reporting,” Bronnenkant said.

I sold a personal item for more than $600, but I didn’t make a profit. Do I still have to report it?

You don’t have to have a business entity or have a side hustle to be subject to the new reporting rules. Many people will receive a 1099-K even though none of the proceeds they receive will be taxable, Bronnenkant said. You may have sold a piece of dining-room furniture because you’re downsizing, as one reader emailed. “It concerns me that PayPal wants my Social Security number and will use it to report my proceeds to the IRS on a 1099-K,” one Maryland reader wrote. “It might start a chain of events requiring me to fight with the IRS. I have proof of purchase from when I purchased the piece of furniture new 20 years ago, but I really don’t want the headache of dealing with the IRS.” If you sell personal property for less than what you paid for it, the proceeds are not taxable, Bronnenkant points out, adding that personal losses are nondeductible. However, if you don’t report the proceeds on your tax return, you could get a notice from the IRS. If you get a notice, definitely respond and provide the documentation to show that the transaction was nontaxable, Bronnenkant advises.

Why is the IRS going after people just trying to make some extra money?

On this complaint, I like what Bronnenkant says: “The business income that was taxable last year is also taxable this year. Receipts of gifts that were tax-free last year are still tax-free this year. The law determining which income is taxable or not has not changed, but the number of places to hide unreported taxable income is getting smaller and smaller.” This question reminds me of when my children were younger and they would complain about certain rules they had to follow but that their friends flouted. I’ll tell you what I told my children. Do the right thing regardless of what others get away with. Is it right that so many wealthy folks can find ways to avoid paying their fair share of taxes? No, it isn’t fair. But that doesn’t mean you get to avoid your tax obligation.

clockThis article was published more than 1 year ago

Personal Finance

IRS delays reporting rule for Venmo, PayPal and other payment apps

Implementation of a lower threshold for 1099-K reporting will be pushed back one year

Perspective by Michelle Singletary

Columnist

Updated December 23, 2022 at 3:44 p.m. EST|Published February 8, 2022 at 6:37 p.m. EST

Using Venmo, PayPal and Cash App to accept payments for your small business? Here’s what the new tax law says. (Video: Amber Ferguson/The Washington Post)

NOTE: The IRS delayed its tax reporting rule Friday, so we are offering this updated column from February from Michelle Singletary’s archive.

A new income tax reporting rule that has been causing confusion for users of various payment apps will now be delayed by a year, the IRS said Friday.

As a result, third-party payment processors such as PayPal, Venmo and Cash App will not be required to report transactions of $600 or more on Form 1099-K for the 2022 tax year.