If you are one of those people who loves to use quick payment apps because they are more convenient, or you use them to receive your paycheck because it saves you from paying taxes… We regret to tell you that there is news for you.
The Internal Revenue Service (IRS) has announced a new measure that will directly affect these workers (mostly freelancers and those who have additional or non-permanent jobs, called side hustles).
So yes, starting this month, if you are used to receiving your payments through applications such as Paypal, Venmo or CashApp, a value-added tax will be applied to you. We will tell you what it consists of and why they have implemented it now, stay tuned!
Why is this change coming now?
It’s coming as a prerequisite for filing taxes (pay attention, for the tax return that will be filed in April 2025!!).
And it’s that, starting this December, users who receive more than $5,000 from these types of applications (and from commercial services, of course) must complete Form 1099-K. No, it’s not a new tax, it’s just that the IRS needs to update the tax policies that are currently in place to ensure that you pay your taxes like everyone else.
With this, they will be able to control the money that moves in online wallets, which very often goes undeclared, and we already know how essential it is for everyone to declare taxes.
Why is this happening?
It was in 2021 when the authorities proposed an American Rescue Plan, realizing that there was a lack of transparency in the accounting of many Americans (usually freelancers and small business owners) who used to receive money through their wallet apps. Until now, the IRS only required declaring amounts greater than $600, but with this modification of the measure, the initial limit will be increased to $5,000.
Who will be most affected by this modification?
First, freelancers who use these applications to collect payments, and then, those who have received income greater than $5,000 for some commercial activity.
Don’t worry, if you only use these applications to send money between family or friends to pay for something, you will not be required to fill out the 1099-K form (no, paying for your friend’s pizza for dinner is not a commercial activity!)
What is the 1099-k form?
Well, it will be your best and worst enemy if this measure affects you. This document will be the one you have to fill out to report your income to the Administration, and it will include details to explain where these transactions come from and what will have to be deducted from your taxes.
Objectives of the measure
It is clear that the main objective is to improve the fiscal control of Americans, and with the increase in the use of online wallets, banks were not able to fiscally control how much money moved between transactions, which has made their regulation difficult and therefore the collection of taxes on these movements, so, although this measure will cause more work among those freelancers, it is essential to formalize these economic activities.
What do I do if I meet the criteria but don’t know how to file my taxes?
You will need to complete the form mentioned above (1099-K) by April 2025, which will be when the 2024 tax year closes. In case you have any questions, the best thing we can recommend is that you contact a tax advisor, so that you can ensure that you are complying with all the requirements properly.
Remember that not filing taxes can result in fines and penalties from the IRS, and nobody wants a fine, right?