PORTLAND (WGME) — Small companies and freelancers utilizing fee platforms like Venmo and PayPal will face new IRS reporting requirements this tax season, with revenue thresholds step by step lowering over the following few years.
At Ward’s Barbershop in Portland, proprietor Alex Ward says apps like Venmo have grow to be a comfort for his clients at his largely cash-based enterprise.
“If the ATM is down, folks don’t have their pockets, no matter it’s, swiftly Venmo use goes very excessive, in a short time,” Ward mentioned.
For small companies like his, third-party fee apps present a method to accommodate clients with out the added expense of bank card charges.
“If it is a enterprise transaction, the particular person hits that little button after which it takes out a transactional price, however apart from that, it has been a fee-free system,” Ward mentioned.
Beginning in 2024, nonetheless, the IRS would require companies to report revenue from third-party fee apps if it exceeds $5,000 yearly.
That threshold will drop to $2,500 in 2025, and by 2026, any revenue over $600 will must be reported.
“As with most issues with taxes, yearly is sort of a brand new journey,” Wipfli Senior Tax Supervisor Mike Santo mentioned. “The concept is that that is for items and companies being offered for revenue.”
Every fee app is predicted to ship customers the required tax kinds if their revenue exceeds the brink, however Santo warns that the rollout may include hiccups at first.
“That is the place it could get tough,” Santo mentioned. “Every of those third-party fee apps, they’ve most likely all tackled this slightly bit otherwise.”
One huge factor to recollect: this new rule will solely apply to enterprise transactions. Private transactions like splitting a dinner invoice, splitting hire with a roommate or simply reimbursing mates are usually not topic to the brand new reporting necessities.
“That is not the intent of the rule,” Santo mentioned. “If it was only for the reimbursement of bills, you should not be getting taxed on that.”
Tax consultants additionally warning private customers who continuously use Venmo or PayPal to make sure their transactions are categorized appropriately to keep away from being wrongly flagged. Whereas the adjustments are supposed to goal enterprise revenue, customers might face pointless problems if private funds are misclassified.
