New tax rule on apps like Venmo, PayPal could spell confusion for small businesses
Alexandria, Virginia — Monica Colburn helps run a Virginia hair salon. But like a growing number of Americans, she uses her flexible schedule to earn extra money.
"I have all of these extra side jobs," Colburn told CBS News.
She works weddings and promotes musicians. "I think last year, I had eight 1099s," she said.
In the process, she collects most of her income for that work through payment apps like Venmo.
"If I didn't have multiple ways that somebody could pay me, I feel like I would lose business," Colburn said.
While the apps are easy to use, starting next year, filing taxes for millions of people could become trickier. A new IRS rule will require anyone who earned over $600 on payment apps in 2023 to file a 1099-K form. The previous threshold was $20,000 on over 200 transactions.
Confusion over the changes led the IRS this past December to delay its implementation.
"This is not a tax law change," explained Lisa Greene-Lewis with TurboTax. "This is just a reporting requirement for those third parties like Venmo, PayPal and the credit card companies."
According to the IRS, money exchanged between friends on those apps should not be taxed. As added protection, experts warn users to classify their transactions to family and friends as personal, not goods or services.
"If you're not, you know, in a business, you would not get one of these forms," Greene-Lewis said.
The IRS expects to receive about four million 1099-K forms next year, which the agency claims it will be able to handle.
However, some small businesses, such as that of Maryland furniture maker Dennis Turbeville, are concerned that the extra paperwork from this change could lead to mistakes and prompt costly penalties.
"Small businesses don't have the resources to understand how to do things properly," Turbeville said. "A $2,500 penalty for a business that's doing $2 million a year, not a big deal. For somebody like me, that's a big deal."