The United States government has taken more interest in mobile payment applications. Mobile payment companies are increasing in size year after year. The United States government is interested in maximizing its share through the most efficient revenue-creating source they have, taxes. A change to the taxation of mobile transactions is on the horizon, and the average user needs to be more aware of their transactions to avoid tax issues. More than two billion people globally use mobile payment applications. Applications such as PayPal (Venmo), Google Pay, Apple Pay, and Cash App saw drastic increases in use during the COVID-19 pandemic, where contactless payment became the new normal. Venmo made $850 million in 2021, an 88% increase in 2020 revenue. Experts predict that mobile payment applications will continue to increase in the upcoming years.
The new law seeks to crack down on Americans’ taxable income. A broad view of current tax law states that gross income is “all income from whatever source derived . . . .” However, the current law on mobile transactions has always focused on income for merchants and businesses only. So, the reimbursement from your friend for lunch is not what Uncle Sam is after with the proposed change. Currently, companies are required to report income from mobile applications if there were more than 200 transactions in a tax year, exceeding an aggregate amount of $20,000. A change in the law requires that users report all 2022 mobile transactions exceeding $600 per year on a 1099-K Form. But due to consumer confusion and a letter to Congressional leaders from the American Institute of Certified Public Accountants, Commissioner Doug O’Donnell reported that Congress delayed the law until the 2023 tax season. The change requires users to record 2023 transactions that meet the new criteria.
But due to consumer confusion and a letter to Congressional leaders from the American Institute of Certified Public Accountants, Commissioner Doug O’Donnell reported that Congress delayed the law until the 2023 tax season. The change requires users to record 2023 transactions that meet the new criteria.
The change to the current law makes sense when viewing the United States government as a business. The law lowering the threshold from $20,000 to $600 allows the government to tax more transactions than in previous years. Although the law does not track personal transactions, third-party transactions paid in 2023 with any participating payee get reported. But, there is more behind the revised tax law than government revenue.
The mobile payment application law is part of broader legislation. The changes to reporting mobile payments are a portion of more encompassing legislation enacted on March 11, 2021, The American Rescue Plan Act. The tax reporting changes for mobile payment applications are only a minor part of what The American Rescue Plan Act is most known for, the third round of stimulus checks and the extension of additional federal unemployment benefits that ran into September 2021. Although Congress enacted the legislation in 2021, the implementation of the mobile payment tax was to take place for the 2022 tax year. Even with months of notice, consumers, businesses, and accountants showed great concern with the timeline of implementation of the tax reporting changes. Corporations and users will see changes because of the drastic decrease in the reporting threshold.
Small businesses will see the most change.
Small businesses will see the most change. Companies such as Poshmark, Abercrombie & Fitch, and Delivery.com are already using Venmo. Large corporations accepting mobile payments likely exceed the 200 transactions per year and the $20,000 threshold under the previous law. However, consumers who may watch a friend’s pet a few weeks out of the year, casually walk dogs, or other minor services may now be under the microscope in 2023. While all the previously mentioned services are considered income and taxable, many Americans were not reporting these services as part of their income. Since the services are relatively minor and generate a small amount of money for the average person, it is similar to finding money on the street. Many Americans are not reporting an extra $20 from the sidewalk in their upcoming tax form, even though the law requires it. However, the change in the law is “to compel American workers to ‘pay your fair share.’”
Austin is from Grand Rapids, Michigan, and went to Michigan State University, where he received his undergraduate degree in Chemical Engineering. During his time at Michigan State, Austin played NCAA division one Ice Hockey. Austin has an interest in intellectual property law.