Is the IRS About to Tax Your PayPal Income?

Many Americans rely on cash apps like PayPal to process payments for products or services. Tax season 2023 brings a sharp change in the IRS reporting threshold for such third-party transactions. While until now you only had to report your cash app earnings if they exceeded $20,000 in a single year, now you need to file a separate form (1099-K) for any gross income over $600.

What’s going on? Is the IRS about to pursue your PayPal income? Let’s explain what you need to know when you file your tax return.

Why the IRS Changed Its Reporting Requirements

Here’s the first and most important point: despite what some attention-grabbing headlines imply, the IRS isn’t changing its definition of taxable income. The funds you received via PayPal, Venmo, or Payoneer as a business or freelancer were always subject to the same taxation rules as any other type of income. What changes is only the reporting policy.

Until now, you only needed to file Form 1099-K if you made over 200 transactions and earned over $20,000 through PayPal or other cash apps in a single calendar year. Starting from tax season 2023, you’ll need to file a Form 1099-K for any app-processed taxable income exceeding $600. This new IRS regulation aims to tighten control over side hustle income and “under-the-table” gig payments.

The reporting change targets primarily freelancers and business owners who make less than $20,000 a year through mobile payment apps. If, until now this income stream would fit into other forms on your tax return, starting from 2023, it will require a separate form.

Exceptions to Form 1099-K Reporting

The new IRS reporting policy raised some concerns about non-business cash app transfers getting mislabeled as taxable income. Could the IRS target the money your parents sent you for Christmas or the Venmo transfer your friend made to pay you back after a dinner out?

Some cash app transactions will remain non-taxable even if they exceed the $600 threshold. These include:

  • Personal gifts
  • Reimbursement payments
  • Any money you receive for personal items sold at a loss

You shouldn’t worry if you pick up some groceries for your sister and she pays you back via a cash app or if you hold a garage sale and accept PayPal or Venmo payments—these proceeds don’t count as taxable income.

Could the IRS request taxpayers provide receipts or another kind of evidence to prove that their cash app transactions were non-taxable? Theoretically, it’s possible. Americans will have to wait and see how the new reporting rules play out in 2023.

What the New Regulations Mean for Cash App Users

So is the IRS about to tax your PayPal income? Probably not, as long as you keep clear records and report your taxable income correctly.

If you received over $600 in payments for goods or services during 2022, PayPal, Venmo, and other cash apps will provide a 1099-K form for you to fill out as part of your tax return. Users may need to provide relevant information, like their Tax ID or SSN, to keep using cash apps.

Levy & Associates: Making Sure You Keep Up With IRS Requirements

Keeping up with shifting IRS rules and regulations can be tricky. Even if you’re a law-abiding taxpayer, a reporting mistake could lead to a rejected tax return or even an IRS audit.

Wondering how to figure out what to file for income from apps like PayPal or Venmo? At Levy & Associates, we offer efficient solutions to any tax problem. Our expert team of CPAs, tax attorneys, and former IRS specialists is here to make sure you comply with all IRS requirements and help you resolve audits, liens, penalties, and other tax liabilities.

Call 800.TAX.LEVY or contact us online to learn more about our tax services.

Contact Levy & Associates for Dependable Tax Audit Services

Levy & Associates is available for free initial consultations. We’re happy to answer any questions you have about the audit process or address any concerns about your specific situation.

There’s never a good time to be audited, and the time-consuming process will take away from your business or family if you try to face it alone. Let us handle and coordinate communication, so you can return to your daily life.