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Earnings from payment apps will be taxed

On Behalf of | Apr 27, 2022 | Uncategorized |

The omnibus bill that was recently passed by Congress contained several new measures that many lawmakers would have preferred to be left out, but the fact the new laws were tagged to the continuing government funding initiative meant that some would stay in the legislation. One clause was the order for cash payment apps like PayPal to report to the IRS any payments made to individuals beyond a $600 total. It will now just be a matter of time before states like Washington will also access that information. The amount is significant because it is the limit the IRS requires for businesses to report their workers earnings in their tax filings.

What this means for the virtual economy

This required reporting is a very big issue for those who earn a living using the Internet as their business platform. There have long been restrictions for those wanting to be paid in a work-around fashion before this became a federal requirement, which had been the preferred method for online entrepreneurs until this change in tax law. It also means that virtual economy business managers will need to maintain detailed income records.

Family transfer exemptions

There is a specific exemption that the government says will apply to the new tax policy demand from the Internal Revenue Service and Congress. The exemption is that transfers made within families will not be included as income. They will assuredly be swept up with the massive record reporting, but it will be up to filers to prove the receiver is related.

This policy change will also trigger how many online businesses operate within the system. States are strapped for finances as it is, with many already requiring sales tax additions with purchases, and it is still unclear how both the states and businesses will react.