Peer-2-peer (P2P) payment apps, also known as money transfer apps or mobile wallets such as Paypal, Venmo, or Cashapp, are popular online payment platforms for business - they are convenient, easy to use, and are highly efficient ways to transfer money. However, with new regulations, using P2P payment apps for business transactions will be subject to taxation in the United States.
In this article, we will discuss what is Form 1099-K, who is required to file taxes under the new rule for P2P users, and what information should be included in declaring to the Internal Revenue Service (IRS).
Let's first understand the current tax rule to get a broader picture of the changes.
For the current or the old tax rule on 1099-K tax returns filed prior to 2022, the IRS has set thresholds as follows:
Now, the new tax rule on P2P Apps for calendar years after 2021, the IRS has changed the threshold as follows:
Put simply - you are required to report your earnings on the sale of goods and services if $600 or more was processed through these platforms. If you cross the threshold, the IRS expects the third-party networks in this case the P2P Apps to issue Form 1099-K to you to report payment transactions.
Even if you do not receive a 1099-K, you are required to file the earrings in your income tax return.Â These new P2P tax laws will impact many users such as gig workers, online sellers, self-employed business owners, freelancers, etc.
The new taxation rule for third-party payment networks has been implemented under the American Rescue Plan, the $1.9 trillion stimulus package that came into effect in March of last year. The change doesn't impact 2021 taxes but will impact 2022 tax returns filed in 2023.
To reiterate, beginning January 2022, if you receive $600 or more payments for goods and services in the current year, through a third-party payment network, such as Venmo, CashApp, or Paypal, your earnings will be reported to the IRS through Form 1099-K sent by the P2P platforms and income tax return.
The tax rule only applies to payments received for sales of goods and services and does not include payments to friends and family.
Form 1099-K, Payment Card, and Third Party Network Transactions is an IRS form used to report payments for goods and services transactions to improve voluntary tax compliance.
Payment settlement entities such as debit/credit card companies including PayPal, Venmo, Stripe, Etsy, and others are required by law to file them with the IRS and share copies with the payment recipient.
You would receive Form 1099-K by January 31st of the following year if you received payments in the previous calendar year.
Your Form 1099-K includes the gross amount of all reportable payment transactions, excluding any adjustments for credits, discounts, fees, or refunded amounts.
A Form 1099-K will be sent to you from each payment settlement entity from which you received payments in settlement of reportable payment transactions.
A reportable payment transaction covers a payment card transaction or a third-party network transaction.
The minimum reporting threshold is meant only for transactions settled through a third-party network. There is no threshold for payment card transactions.
Your third-party payment provider may request tax information such as your Employer Identification Number (EIN), Individual Tax Identification (ITIN), or Social Security Number to report payments on Form 1099-K properly. Once this information is confirmed, your tax forms can be issued without a hassle.
If you cross the reporting threshold for the sale of goods and services on the payment apps, the Form 1099-K will be issued to you at the beginning of the 2023 tax period, and a copy of it will be sent to the IRS.
You can also download account statements for any reporting obligations, even if payments received are within $600. If needed, seek a licensed tax expert to assist you.
You must report any income listed on your Form 1099-K from your business on your income tax return.
Since Form 1099-K may include both taxable and nontaxable income, keeping good records is very crucial. If you receive money from a nontaxable source, such as money received as gift or splitting bills, you need not report on your tax return.
Also, make sure that your business books and records mirror your business income. Business income is generally referred to as the gross receipts on income tax returns. Your business income can be in the form of cash, checks, and debit/credit card payments.
So consider the amounts shown on Form 1099-K, along with the other payments received, when calculating gross receipts for your income tax return.
Record keeping is vital for accurate tax reporting. If you receive the Form 1099-K at year-end, you can check your accounting records to see if the income reported to the IRS is accurate. Even if you don't receive Form 1099-K, the income still needs to be reported on your tax return.
The IRS tax rules are the same for all the P2P platforms, including PayPal, Stripe, or Venmo, though it might be enforced differently. If you are receiving business payments from multiple platforms and the collective amounts from sales on these platforms exceed $600, consider speaking to a licensed tax professional for best practices.
You can find the contact details on Form 1099-K if you have any questions on the matter.
While this rule applies to most third-party payment networks, Zelle is not included. Only the P2P payment companies that deal with the settlement of funds in business transactions are required to issue 1099 forms to users. Zelle doesn't process payments but facilitates communication via messages between a financial institution and people making the payments.
Zelle states that it does not report transactions made on its Network to the IRS, even if the total is more than $600. The new law to provide forms 1099K for information reporting does not apply to the Zelle Network, it added.
Most digital wallets or P2P payment platforms do not support international money transfers. The best way to send money from the U.S. internationally is through online money transfer companies such as Xe money transfer, Remitly, and Western Union.
In general, when you send money from the United States, the first $15,000 USD, per recipient will be exempt from taxes by the IRS under the Gift Tax policy. Although sending money as a gift is not taxable, you may need to report it to the IRS.
In conclusion, from the beginning of the 2022 tax year, P2P platforms will be required to send Form 1099-K to users and the IRS to report payment transactions totaling $600 or more in a financial year. While this does not have any impact on international money transfer yet, existing laws that govern cross-border transactions will be applicable including Gift Tax.
Abound, a comprehensive super-app tailored for Non-Resident Indians (NRIs), has successfully secured $10 million in funding from the Times of India Group. This investment aims to bolster the app's remittance services, providing a more streamlined and cost-effective solution for expats.Nishkaam Mehta, the CEO of Abound, expressed in a press release on Monday that the primary objective of the app is to alleviate the complexities and high costs associated with traditional financial services for expats. He further emphasized that this borderless super-app is designed to cater to the distinct financial needs of Indian expats across various regions, enabling them to transcend geographical limitations and live their lives to the fullest.According to World Bank estimates from the previous year, remittances witnessed a 5% growth in 2022, reaching a staggering $626 billion. These transfers serve as a crucial financial lifeline for individuals sending money back home to their loved ones. Furthermore, with approximately 1.4 billion adults still without bank accounts, the need for innovative money transfer solutions is more pressing than ever.Abound, a venture of the Times of India Group and previously known as Times Club, is specifically crafted for Indian expatriates residing in the U.S. The app allows users to transfer funds to India without the hassle of long wait times or transfer fees. In addition to this, membership on the platform comes with a host of benefits including cash-linked and loyalty rewards, curated content, and access to both online and offline commerce. As more NRIs seek innovative financial management solutions, Abound positions itself as the ultimate all-in-one platform with features such as:Daily Shopping Rewards: Recognizing the significance of everyday spending for Indian expats, Abound offers a plethora of daily shopping rewards and cashback offers, enabling users to maximize their purchases.Exclusive Offers Across Categories: Abound provides its users with exclusive deals and offers across a wide range of categories, from groceries and entertainment to shopping and travel, thereby enhancing their lifestyle experiences.To commemorate the launch of its remittance feature, Abound is introducing a limited-time promotion for early adopters, offering an exchange rate of $1=₹83 for money transfers to India.Join the NRI community in ushering in a new era of financial management with Abound. The app is readily available for download on both Android and iOS devices, ensuring easy access and a seamless user experience.
According to recent data released by the central bank, Mexico received an impressive sum of nearly $5.7 billion in remittances during the month of May, setting a new monthly record. However, analysts caution that the strength of the peso against the dollar may have mitigated this achievement.Since the majority of remittances to Mexico originate from the United States, the value is recorded in dollars. Goldman Sachs analyst Alberto Ramos explains that "a strong peso hurts remittances," referring to the fact that the appreciation of the Mexican currency has an adverse effect on the funds received when converted from dollars to pesos.Interestingly, the peso has emerged as one of the top-performing currencies this year, appreciating over 13% against the U.S. dollar between May 2022 and May of this year.Due to the peso's appreciation, when measured in local currency, remittances actually experienced a 2.2% decline compared to the previous year, as stated by Ramos.Mexican President Andres Manuel Lopez Obrador has consistently highlighted the positive impact of remittances on the country's economy. The funds, primarily originating from the United States, have played a significant role in Mexico's economic growth.In 2022, Mexico recorded a record high of $58.5 billion in remittances from abroad, making it the second-largest recipient country, trailing only behind India.Despite the challenges posed by the "super peso," the dollar value of remittances sent in May increased by nearly 11% compared to the previous year.The latest data for May reveals a substantial jump of almost 14% compared to the previous month, resulting in a total inflow of funds reaching $24.67 billion this year.Notably, this amount surpasses the combined revenue generated by oil and agricultural exports during the same period, as noted by analysts at Mexican brokerage Monex.Analysts at Monex and BBVA attribute part of the May surge to the celebration of Mother's Day, suggesting that around 10% of the increased transactions can be attributed to this commemoration.The number of transactions in May experienced a 7% year-on-year increase, reaching a total of 14.56 million. Furthermore, the average amount per transaction rose by 3% to $391.Goldman Sachs' Ramos emphasizes that the strength of remittances reflects the robust U.S. labor market and visible wage growth, particularly in sectors where Mexican citizens are prominently represented.To compare today's best rates when remitting money to Mexico, use CompareRemit's easy-to-use USD to MXN exchange rate comparison tool!
Recently, the Reserve Bank of India (RBI) issued a new rule regarding the repatriation of unused foreign exchange. According to this rule, any individual who has received foreign exchange must surrender any unspent or unused foreign currency to an authorized person within 180 days from the date of receipt or their return to India.This rule has been implemented to ensure that individuals do not hoard foreign currency and that it is used for the intended purpose. It is also aimed at preventing the black marketing of foreign currency, which has been a major problem in India for many years.The rule applies to any individual who has received foreign exchange under the Liberalised Remittance Scheme (LRS) of the RBI. The LRS allows resident individuals to freely remit up to USD 250,000 per financial year for any permissible current or capital account transaction or a combination of both.The RBI has made it clear that any unspent or unused foreign exchange must be surrendered to an authorized person, which can be a bank or a money changer. The authorized person will then credit the amount to the individual's account after deducting any applicable charges.It is important to note that failure to comply with this rule can result in penalties and fines imposed by the RBI. In addition, individuals who fail to repatriate their unused foreign exchange may be barred from availing of the LRS in the future.This rule is part of the RBI's ongoing efforts to regulate the flow of foreign exchange and prevent the misuse of foreign currency. It is a step towards creating a transparent and efficient foreign exchange market in India.The new RBI LRS rule regarding the repatriation of unused foreign exchange is a positive step towards ensuring the proper use of foreign currency in India. It is important for individuals to comply with this rule and surrender any unspent or unused foreign exchange to an authorized person within the stipulated timeframe.
Download Our Free App
Try our faster, enhanced mobile app for a better experience