NEW IRS rules for 2022 mean more transactions on PayPal and Venmo are taxable, and your kids could make a simple mistake that leaves them with taxes.
Before, IRS only requires digital payment apps to notify them when a user has more than 200 commercial transactions totaling $20,000 per year.
But as of January 1, 2022, people who conduct transactions totaling more than $600 per year in merchant payments through the app will need to request a 1099-K form and taxpayer on those transactions.
PayPal has released a statement to help consumers understand responsibility.
“PayPal and Venmo provide a way for customers to tag their peer-to-peer (P2P) transactions as individuals/friends and family or goods and services by selecting the right category for each transaction” , the payments giant said.
“Users should select Goods and Services whenever they send money to another user to purchase an item, such as a couch from a local ad listing or concert tickets, or pay for a service,” the service added.
SETTINGS TO CHANGE
PayPal and Venmo both have Pre-installed designed to protect against accidental business transactions.
When paying on Venmo, a button on the confirmation screen says “Enable for purchases”.
Switching that option to “on” will protect payments when making purchases from a business.
However, if it is used during person-to-person payments, it can cause big tax trouble. Remind your child to turn this feature off for each payment.
The button should be grayed out when checkout is set to “personal”.
And on PayPal, the confirmation will say “Sending to a friend” below the amount and reason for the transaction.
Instead, if the page says “Pay for an item or service,” click that text to convert it to a personal payment.
FIXED PAYMENT TYPE
If your child accidentally receives a business transaction, correct one casual business payment on PayPal it’s easy: your child simply declines to pay.
Once they’ve opted out of accepting payments, they can ask the friend directly to send the money back, after changing it to “Send to a friend”.
Or, they can make their own PayPal request.
However, if your child receives a Venmo transaction from a friend marked as payment for an item or service, they will need to contact customer service.
Venmo’s customer service team will then be able to change your assignment pay and make sure it’s not taxed.
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https://www.the-sun.com/money/4723141/tax-season-teen-charged-irs-venmo-paypal/ How to prevent your teen from being charged by the IRS for sending money to their friends on Venmo and PayPal