A recent piece of TikTok finance advice has struck terror into the hearts of payment app users, claiming that anyone who receives more than $600 on platforms like Venmo, Zelle, or CashApp will receive a 1099-K tax form starting next year.
Of course, everyone in these videos' comments immediately freaked out. What are we supposed to do for payments like splitting rent with roommates? Or paying for a big group trip? Would we have to – gasp– resort to cash?
Take a deep breath. These TikToks are leaving out a bit of vital information, probably in the quest for more enraged views.
The answer is no, you most likely will not have to move larger payments away from your preferred app, or pay a sort of sales tax on large money transfers between friends or family members. While there are some policy changes afoot, taxes on larger payments will be mostly aimed at business transactions, notindividual person-to-person payments.
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The impetus for the misleading social media finance tips comes from the American Rescue Plan Act of 2021. The act modifies the IRS reporting requirement for payments on apps from the previous threshold of $20,000 down to $600, and will go into effect Jan. 1, 2022. While this threshold is significantly shorter, it should only apply to business accounts on each platform.
To make extra sure that you won't be suddenly surprised with a tax form, we reached out to each popular payment app for their explanation on any changing policies.
According to a spokesperson from PayPal, the American Rescue Act will be affecting tax reporting thresholds as stated, but will only be applicable to payments for goods and services, not to friends and family. It's also important to note that these changes should be industry-wide and not specific to PayPal or Venmo.
While it's likely that Zelle's policies will be altered in similar ways to Venmo's and Paypal's, the platform declined to say anything specific enough to reassure users. "Zelle does not provide tax or legal advice. If consumers have questions about their individual situations, they should seek advice from a tax professional," a spokesperson told Mashable.
CashApp did not respond to a request for comment from Mashable for more specific advice, but the official TikTok account did comment for clarity on one of the videos purporting the tax claim, as seen in the screenshot below.
CashApp's comments on a TikTok warning users about the tax amount.Credit: Screenshot: TikTokAs stated in the comments, a user may only receive a 1099-K form if they receive more than $600 on a Cash for Business account starting in 2022. Regular accounts seem to be exempt.
It's important to note that if you do receive a 1099-K form next year that you believe to be a mistake, you're not doomed to pay an additional tax. "These [1099-K forms] are just information reports. They don’t themselves determine tax liability," said Steven Rosenthal, senior fellow at the Urban-Brookings Tax Policy Center at the Urban Institute, to Acorns.
If you do receive a form and need to prove that you aren't hiding business transactions, you can provide receipts for bigger transactions to explain any gifted amounts or person-to-person payments. As long as you're not making additional income over $600 via these apps, you should be in the clear!
TopicsApps & Software
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