Digital payments are being reported to the IRS, what this means for your 2022 taxes
The American Rescue Plan was passed in early 2021 and became effective in the beginning of 2022. As Americans file their 2022 taxes, they will be required to report all payment app transactions totaling $600 or greater to the IRS for all digital payments received in 2022. Payment app examples include peer-to-peer (P2P) players such as Venmo, PayPal and Cash App. This also extends to marketplace players such as Poshmark and freelance platforms such as Upwork. It is not only up to the individual to track their payments; the onus falls on these companies who are also being required to report each user’s transactions if they meet the $600 annual threshold.
To be clear, the $600 threshold is for total payments received, not individual payment transactions. A Poshmarker selling $50 worth of items every month for a year would result in the $600 threshold being met, and that money needing to be claimed on 2022 taxes.
The American Rescue Plan was intended to put a stop to Americans who evade their taxes by not claiming their full gross income. However, it can be found as government overreach and has the potential to hurt Americans.
The plan could discourage Americans who have casual, inconsistent side gigs such as selling used goods online through Poshmark or providing freelance services on Upwork. Another potential impact is that Americans may revert to cash-only payments for these inconsistent side gigs.
The current language around the rule makes it applicable to only payments received for goods and services. Utilizing P2P platforms such as Venmo or PayPal to send someone a gift or to reimburse them does not count towards the $600 annual threshold. To help organize and qualify these payments, PayPal implemented an additional step on its platform that requires payers to indicate if the payment is for goods/services or personal matters. Venmo’s platform has not yet included this question in its money sending process. Since there is inconsistency across P2P platforms, it is safe to expect messy tax reporting in the coming year. Prepare yourselves to explain every digital payment transaction in the event of an audit.
Another caveat to the rule is that items sold at a loss are not to be included in the tax form. For example, a pair of shoes purchased for $100 and sold for $60 does not result in $60 counting towards the $600 threshold. However, marketplace players have not considered this caveat in their newly added tax forms. As an avid Poshmark seller, I began to get notified about tax reporting in the beginning of this year. Even though I am selling used goods at a loss, I am still required to report all earnings over $600. It is apparent that apps who act as the facilitators of side gigs do not know what to do with the new rule and are erring on the side of caution.
It is ironic that the IRS is cracking down on Americans over $600-plus transactions. The U.S. Department of Defense recently failed its fifth consecutive audit where it was incapable of accounting for about $2.1 trillion. This poses the question: are America’s auditing priorities in order?




Leave a reply

Please enter your comment!
Please enter your name here