People on social media are freaking out over claims that the Biden administration is setting new taxes on payment apps like PayPal, Venmo, and the Cash App. However, those claims are fake news. There isn’t any new Cash App tax for 2022.
The IRS hasn’t changed the rules for Cash App, yet.
The Biden administration has proposed, not approved, a plan for banks and other financial institutions including apps like Venmo, PayPal, and Cash App, to report to the IRS on money that goes in and out of accounts with values of at least $600.
The reporting requirement is still only a proposal. It needs approval from Congress to be a done deal.
The proposal is an attempt by the government to get a handle on the almost $600 billion annually in taxes that should be paid but aren’t. The amount U.S. citizens are paying in income taxes is $166 billion less than what they owe.
So, the Treasury Department isn't creating any new taxes. It’s trying to make sure you pay what you already owe.
Anyone under age 65 is subject to paying income tax if they make $12,000 or more per year. Employers give their employees W-2 forms that report their income and how much is taken out of their paycheck for income taxes. However, business owners, independent contractors, and other self-employed individuals are responsible for withholding and reporting their income on their own.
If you’re honest about your income, you really shouldn’t be concerned about the proposal if it's approved.
The proposal aims to provide equity in the tax system.
The proposal’s goal is to make sure the tax system is more equitable and that the wealthy are paying their fair share, said Natasha Sarin, deputy assistant secretary for economic policy at the U.S. Department of Treasury.
About half of the individual income tax gap comes from income streams of proprietorships, partnerships, and S-corporations, where there's either little or no information available to the IRS to verify the accuracy of tax filings, Sarin said.
She said that more than $160 billion is lost annually from taxes that those in the top 1 percent choose not to pay.
“Overall, the Administration’s compliance initiatives are guided by a singular objective – bringing about an end to a two-tiered tax system, where ordinary Americans comply with their tax obligations, but many high-end taxpayers do not,” Sarin said in a statement.
Will the Cash App send you a 1099 next year?
According to the Cash App website, certain accounts receive 1099 tax forms. Users with Cash App for Business accounts that accept over $20,000 and more than 200 payments per year will receive a 1099-K tax form.
Some states require 1099-K forms for smaller yearly transactions. For example, Cash App is required to issue the form to taxpayers in Massachusetts, Vermont, Maryland, Virginia, and Washington, D.C. if they accept $600 or more in payments.
If you're getting paid for a job, no matter how much it is, you must report all of the income to the IRS.