Issue #129: On tequila and the new IRS Venmo rule

February 2, 2022 • Issue #129

Hi y’all —

While I was home for the holidays, my mom posed a question to me and my brothers. Recently, she said, she’d dug out an old bottle of tequila we’d kept for years on a dusty shelf in the kitchen — only to find it full of water.

Once she swallowed her shock, she wanted to know who’d done it. Which of us, at some point in the last decade, secretly drank the tequila… and then covered their tracks because they were underage?

“Well, obviously,” I interjected, “it wasn’t me.”

Instantly, everyone agreed. The investigation immediately switched tracks; my brothers became the prime suspects. I didn’t even have to present evidence. It couldn’t have been me, because anyone who knows me knows I don’t break rules. Period.

I’m obedient to a fault, and that’s why I broke out into a cold sweat when I got emails from StubHub, Venmo and PayPal about a new IRS rule affecting people who exceed $600 in gross sales on their platforms. With the amount of concert ticket buying and selling I do, the policy definitely applies to me. But I’d never heard of it.

What’s the deal with this $600 IRS rule? Have I been breaking it? What do I need to know?

I called Mark Steber, the chief tax officer at Jackson Hewitt, to help me untangle the details. The first thing he told me was that there’s a LOT of confusion around the rule. (Great.)

What we do know is that the American Rescue Plan, passed last March, changed a threshold for third-party settlement organizations. Previously, payment facilitators like PayPal and Venmo only had to send me a Form 1099-K if I received more than $20,000 in gross payments and more than 200 transactions on those platforms. But that new law dropped the minimum to $600 and any number of transactions.

That’s a significant change. In the past, the rule mostly applied to serious, big-time sellers on platforms like eBay — “you had to really be in the business of selling crocheted stuffed animals on the internet,” Steber jokes. But now it’s going to capture randos like me, who use these apps not so much for side hustles as fun.

The policy took effect Jan. 1, 2022, so last year doesn’t count. However, Steber says the rule amounts to a “quantum shift” for taxpayers, and it touches several aspects of peer-to-peer payment.

If I rent out my apartment as an Airbnb for a few nights and make more than $600? I’m gonna get a 1099-K. If I sell a handful of Harry Styles tickets on StubHub and make more than $600? 1099-K. You get the idea.

Form 1099-K "includes the gross amount of all reportable payment transactions," according to the IRS, meaning the government is going to be all up in my business. But according to Joanna Powell, a certified public accountant at CBIZ & MHM, that’s nothing new.

“The tax law for income purposes has not changed at all. Anything that was considered taxable income to you before was still considered taxable income and whatever wasn't still isn’t,” she says. “While Cash App and Venmo and PayPal now might have to report information to the IRS, it doesn't automatically create taxable income to you.”

Basically, I was always supposed to be reporting this income on my tax return. People have not been, and that’s likely why the IRS is enacting this now.

On top of motivating sellers “to report the things they’re supposed to be reporting,” Powell says, it also helps the IRS get more revenue.

Fortunately, there are some transactions that don’t fall under this umbrella. These include personal gifts and reimbursements. Me Venmoing my roommate for half the rent doesn’t count; neither does her sending me 20 bucks to cover dinner. If I sell an asset at a loss — say I have a $1,500 couch that I let a person off Craigslist buy via Cash App for $800 — that shouldn’t pose a problem, either.

It’s when I’m making a profit where it gets tricky.

Steber says the government is looking to crack down on entrepreneurs, online sellers or people who are self-employed and haven’t been reporting their income either due to confusion or inaccurate information. Dog walkers, lawn mowers, eyebrow threaders and the like will all now get 1099-Ks (or skirt the rules by asking for lowercase-C cash instead).

The IRS is “not looking to capture small fish,” Steber says, “but they may get caught up in the net.”

Since this is a new rule, right now the apps are still trying to figure it out. They may only send 1099-Ks to business accounts, or they may enact a tagging system where users can indicate whether something is a personal reimbursement. I might get some 1099-Ks in error, and then I’m going to have to figure out what to do with them.

We don’t know yet how the IRS will go about matching up the 1099-Ks with people’s tax returns and auditing them accordingly, either.

“It’s going to be really difficult for these apps to keep track of everything 100% accurately,” Powell says.

THE BOTTOM LINE

(but please don't tell me you scrolled past all of my hard work)

The $600 rule for disclosing payments to the IRS is aimed at looping the government in on income that I was already supposed to be reporting. (Oops.) It affects the 2022 tax year and beyond.

I don't necessarily need to change my habits, but I do need to make sure I’m keeping extremely good records so that when I receive these forms and eventually file my taxes, I’ve got proof if the IRS requests more information. The situation is developing quickly, so I should also pay attention to updates that come out of the IRS or the apps I use.

In the meantime, I should be careful.

“If you sell at a gain, that technically is income to you,” Powell says.

VIA GIPHY

RECEIPT OF THE WEEK

check out this wild celebrity purchase

VIA TWITTER

As a huge Jeopardy! fan, I so enjoyed watching Amy Schneider’s historic run on the show the past few weeks. Schneider had to take all her PTO and a few unpaid days in order to make the filming schedule work, but her 40 victories netted her nearly $1.4 million. Last week she confirmed, via Bugs Bunny GIF, she’s already received the check. YGG.

INTERNET GOLD

five things I'm loving online right now

1	Did you know they’re STILL INVENTING pasta shapes? Last year, a podcaster created cascatelli, a ruffled waterfall-like noodle designed to trap sauce in its grooves… and now it’s one of Sfoglini’s top-selling pastas. This mini documentary on how cascatelli is made is fabulous, too.
2	I am generally not a fan of celeb-on-celeb interviews, but I laughed out loud at this clip of Daniel Craig finding out that he’s been bleeding from a head wound the whole time he’s been talking to Javier Bardem. Ring lights, dude. You can’t trust ‘em.
3	Chocolate chip cookies… without chocolate chips? Is that even legal?
4	I loved this story about a New Jersey toddler who managed to spend nearly $1,800 on his mom’s phone. Ayaansh “caught on quickly” to the digital world, writes the Washington Post. “While a WNBC reporter was at his house to report on his wayward online shopping, he flexed his technological prowess by closing the calendar app on her phone, sending an email to her mother and perusing her contacts.”
5	Just sitting here thinking about Yakei, queen of the monkeys.

401(K)9 CONTRIBUTION

send me cute pictures of your pets, please

VIA BARB HENDERSON

This is Betsy, a beautiful pup who is not thrilled that the IRS is going to peeking at her PayPaw transactions for bones.

Anyway, neither of my brothers have taken responsibility for The Tequila Incident. Between you and me, my money’s on Jono.

See you next week.
 

 
P.S. Last issue about things you don't buy inspired some great responses! Scholar Donna tweeted me to never pay for advice because it's always free. In addition to avoiding bottled water, Scholar Dale said he only buys used clothing. Alexa, play "Thrift Shop" by Macklemore.

P.P.S. Are you concerned about this new $600 policy? What’s your favorite type of pasta? If you were on Jeopardy!, what category would you ace? Send Dolla Scholla hollas to julia.glum@money.com or @SuperJulia on Twitter.

This newsletter is free because Money earns a commission when you click or make purchases from the links in this email and on our site. We also receive compensation for some of the products and services featured in this message. Offers may be subject to change without notice. Learn more about how we make money.

Privacy Policy • Advertise With Us • We're Hiring!

To stop receiving these emails, unsubscribe or manage your email preferences.

Copyright ©2022 Ad Practitioners, LLC. All rights reserved.

Metro Office Park Calle 1, Building 7 Suite 204, Guaynabo, Puerto Rico 00968, USA