DETROIT (WYXZ) — With the new year approaching, most people have already started stressing about filing taxes.
And if you've earned money through digital wallet apps like Cash App, PayPal, Zelle, or Venmo, then there is a good chance the IRS knows about it, and you will have to report it as a potential income.
It's part of the 2021 American Rescue Plan, where third-party payment platforms will now issue a 1099-K form for users to track business transactions for tax purposes.
"But you have to distinguish between business transactions and personal transfers," saidDr. Agustin Arbulu, President, COO and Tax Counsel with W Tax Group.
Tax expert Dr. Agustin says even personal accounts on these apps are not exempt.
"If PayPal or Venmo looks at your account and says this account looks slightly different compared to other transactions triggered thought out the year, a 1099-K could be issued," said Dr. Agustin.
Erica Shavez has been relying heavily on cash apps this holiday season and that's why she is a little concerned.
"I do, yes, and I think Facebook Marketplace, for instance, and how a lot of that could be personal transactions, maybe people will find other ways to sell their goods," said Erica Shavez, Cash App user.
But if you are worried about getting a 1099-K form for your personal transactions, Dr. Agustin says the best thing to do is not to file your taxes early.
"If you seek an extension, wait until October of the following year, you will have the full record of all your transactions of the prior year that were reported to the Internal Revenue Service, and from there, you can make an intelligent decision," said Dr. Arbulu.
The new rule does not apply to folks sending money to friends or family. However, any form of profits will be reportable. For example, if you purchased a vintage clock for $300 and sold it for $1000, the earning of $700 is taxable. That's why Auggies says moving forward, transactions will be heavily scrutinized.
"Financial institutions are going to be inquiring more about the user to make sure that particular account is personal and is not being mixed with business.
Dr. Agustin says people who heavily rely on cash apps don't have to stress about it because there are several options to explore, including filling an Offer in Compromise (OIC). An OIC, also known as IRS form 656-L allows taxpayers to dispute part of or all tax debt owed.
Meanwhile, if people have any questions or doubts about filing their taxes, then make sure you reach out to an expert.
