If You Received This Amount Via Cash App or Venmo Last Year You Must Tell the IRS

The IRS has implemented reporting thresholds for P2P payment platforms which will affect how you report income received through these apps. You must report this income to the IRS if you received more than $5,000 in payments for goods and services through platforms like Cash App or Venmo during the 2024 tax year.

Key Takeaways

• You must report the income to the IRS if you received over $5,000 in payments for goods and services through platforms like Cash App or Venmo.
• Failing to report this income can result in but isn’t limited to accuracy-related penalties, failure-to-pay penalties, and/or interest charges.
• Users of P2P payment platforms should keep accurate records, separate personal and business transactions, understand what’s taxable, and report all income regardless of whether they receive a Form 1099-K.

Why You Must Report This Income

The IRS requires reporting of this income for several reasons:

1. Tax compliance: The government wants to ensure that all taxable income is properly reported and taxed.
2. Closing the tax gap: The IRS aims to reduce the gap between taxes owed and taxes paid by lowering the reporting threshold.
3. Fairness: This requirement helps level the playing field between traditional businesses and those operating through digital platforms.
4. Accuracy in reporting: The threshold helps the IRS cross-reference reported income with information received from payment platforms.

How to Report the Income

You should receive a Form 1099-K from the payment provider by Jan. 31 of the following year if you’ve received more than $5,000 in business-related payments through Cash App, Venmo, or similar platforms. This form will detail the total amount of payments you received.

You must still report all taxable income on your tax return even if you don’t receive a 1099-K. Report your 1099-K income on Schedule C of your Form 1040 if you’re a sole proprietor or independent contractor. Don’t forget to deduct legitimate business expenses to reduce your taxable income. You can do this on Schedule C as well.

Important

You must report it to the IRS if you received more than $5,000 even if you don’t receive a Form 1099-K.

Consequences of Not Reporting

Failing to report income from P2P platforms can lead to consequences. Depending on the severity of the underreporting and the intent of the taxpayer, outcomes could include:

1. Accuracy-related penalty: The IRS may impose a 20% penalty on the amount of taxes you underpaid due to negligence or substantial understatement of income.
2. Failure-to-pay penalty: You’ll face a penalty of 0.5% of the unpaid taxes for each month or part of a month the tax remains unpaid, up to 25% of the unpaid amount, if you don’t pay the taxes owed by the due date.
3. Interest: You’ll owe interest on the unpaid tax from the due date until the date of payment in addition to penalties.

The Bottom Line

The reporting requirements for P2P payment platforms reflect the changing landscape of digital transactions and IRS efforts to ensure accurate tax reporting. By understanding these requirements and following best practices, such as reporting cash received if you received more than $5,000, you can stay compliant with tax laws and avoid potential penalties.