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U.S. Income Taxes and Electronic Payment Transfers

(e.g. PayPal, Venmo)

April 12, 2024

For US’ers who handle RC money from classes, workshops and other events.  
 
Tax implications for money collected for RC workshops 
 
This is an update on Using Third Party Apps (such as Venmo, PayPal, and CashApp) and about reporting money received and how to handle disbursement of workshop funds.  
 
For your 2024 taxes (which you'll file in 2025), the IRS is planning a phased rollout, requiring payment apps (PayPal, Venmo, or Cash App) to report freelancer and business owner earnings over $5,000.  They plan to continue to drop this amount annually, heading towards $600 in earnings as the amount they will require payment apps to report.  It is not yet announced how many years or how many steps they will take to drop to that amount. 
 
When researching this information about IRS procedure for this year, I learned about other things we should be thinking about for best practice.  We don’t want RC (in form of an RC organizer or RC event) to get in trouble with the IRS.  Here is a summary below of things to think about.  
 
We should all report to the IRS our RC income whether it’s from teaching, leading, or organizing.  You can deduct expenses which can include anything that makes it possible for you to do your RC job - attending workshops (both the fee and the expense of getting there), attending a class or gather in, buying literature.  For many of us that means that we will show no profit – expenses will exceed income.  
 
If you regularly make a profit over expense in any year, you are seen as having a business for tax purposes. If you regularly have more expenses than profit, you have a “hobby,” which is the IRS’s word.  In addition to meaning that you had more expense than income, it also means that you do the activity not to make a profit.  Hobby income must still be reported.  However, hobby expenses are not reported because they are seen as part of the standard deduction we all get.  
 
Some of us have the feeling that we are not a real business. Since we handle small amounts of funds and only handle funds a limited number of times in a year, we may think we can avoid “business practices.”  In the eyes of the IRS business is taking place, every time we collect workshop fees.  People access RC classes and workshops by paying a fee. We, as organizers pay leaders and are paid as organizers.  Workshops often take in more than basic expenses and distribute the net income which is like profit.  This is all seen as “business” to the IRS and needs to be handled in a business-like manner. 
 
An area where practice varies among RC’ers is whether to use 1099 forms.  This is an IRS form that you send to the leader of a workshop who has earned more than $599.99 and to the IRS so they are aware that you paid the leader the fee.  (This of course obligates the leader to report that income so it’s good to let the leader know.)
 
Tax professionals and some RC organizers told me that any business that pays people needs to issue 1099’s.
 
Some people think this is unnecessary.  Keeping careful records is enough and it is up to the person who receives that money to report their income.  An alternative is to keep careful record of who you paid so that you can show the money was passed along if the IRS asks.  
   
Other good practices when handling RC money.
 
Have a separate bank account for RC money handling.  Your income and workshops you organize could go in there, separate from the rest of your personal or other work funds.  This is not required but helpful.  
 
One tax advisor told me that you want to report everything up front rather than wait for the IRS to come looking for you for not reporting.  To report it all up front, report it as a business on Schedule C.  Even if you have more expenses than income, you can use this schedule (form) to report all money that came in through 3rd party apps and checks, etc.  You can list all expenses and disbursements as well.   
 
Some people are choosing the route of reporting income such as organizer’s fee but not reporting the rest of the workshop money even though it may have come to them through a 3rd party app such as Venmo, PayPal.  They keep careful records so they can show how the money was disbursed if the IRS asks at a later date. 
 
What are the potential consequences of this?  Because of 3rd party app reporting, the IRS will know about the total income that you took in and could question or audit you.  If you can show  how the money was disbursed there will be no tax liability.  
 
Note, the IRS can look back several years so if your plan is to keep careful records you need to store them for several years. 
 
Gladys Maged
Somerville, Massachusetts, USA

 

January 12, 2024

The full article updating these ever changing policies is found here.

"Starting this year, the IRS is planning a phased rollout, requiring payment apps to report freelancer and business owner earnings over $5,000 instead of $600."

The link to the IRS update is here.

 

February 6, 2023

Summary:  This is for people in the US subject to regulations of the IRS, the US tax collection agency.  It explains a regulation relevant to those who collect RC funds for workshops and other RC events.

If you receive workshop fees from workshop participants through a 3rd party AP including Venmo, PayPal, Cash Ap, etc., those companies have always been obligated to report that to the IRS as soon as the total was $20,000 or 200 transactions.   Many of us were unaware of this or not worried because the amounts we dealt with were less than that amount.  About a year ago, the IRS announced that they were dropping the amount to $600.  This concerned many of us because that amount is often reached when organizing an RC workshop.

The IRS has now announced that they are delaying the requirement for electronic payment networks to report transactions over $600 until December 31, 2023. Between now and then, the line at which these payment services will report to the IRS will remain $20,000.  If you would like to read more about this, there are lots of articles about it on the Internet.  (Here’s one.)

It is my personal policy to keep good records of whatever RC money I collect via a payment service like Venmo.  With this higher limit, it seems very unlikely that the IRS will ever want me to show where the money went.  But if it ever did, I will be able to show that I collected the money and passed most or all of it along and only kept whatever fee was mine. In the same spirit, it is my practice to report any money I earn at RC events (as a leader’s fee or organizer’s fee) on my income tax return. As RC’ers, let’s not get tangled up with the complications of an IRS audit. Let’s also make sure we are following the rules when conducting RC business. If you consult a tax accountant, they are likely to suggest additional practices to what I mention here but these few are a good start. Everyone needs to figure out their own practices in this regard. There can be many variations. We just need to be aware and think.  This post is not tax or reporting advice, it is just to alert you to the delay in the lower reporting limit.

Gladys Maged
Somerville, Massachusetts, USA

************************

12/23/2021

Dear RCers in the US,

A year ago we broadcast the email at the bottom of this page regarding payments for RC events made by PayPal, Venmo, and so on. The Internal Revenue Service is again changing its regulations as follows:

Under the American Rescue Plan, changes were made to Form 1099-K reporting requirements for third-party payment networks like Venmo and Cash App that process credit/debit card payments or electronic payment transfers. The change begins with transactions starting January 2022, so it doesn’t impact 2021 taxes. Beginning with tax year 2022 if someone receives payment for goods and services through a third- party payment network, their income will be reported on Form 1099-K if $600 or more was processed as opposed to the current Form 1099-K reporting requirement of 200 transactions and $20,000. This change could impact people working in the gig economy, online sellers, independent contractors, and other self-employed business owners.  [see article]

This could impact people organizing workshops and webinars and receiving payment through PayPal (and other online payment systems) as well. It looks like some workshops and webinars have been dealing with this by asking everyone who pays on Paypal, for example, to select "family and friends", and not "goods and services," since payments for family and friends do not trigger the tax issues involved. We are concerned this practice might make you vulnerable to tax liability to the IRS.

If you are organizing workshops or webinars or classes, and accepting payment online, you will want to check out information about your tax liability. If you are in the U.S., one source of that information is here. 

Quoting from the site:

How does PayPal report my sales to the IRS? Will I receive a tax Form 1099-K?

PayPal will track the payment volume of your account to check whether your payment volume exceeds both of these levels in a calendar year: $20,000 USD in gross payment volume from sales of goods or services in a single calendar year 200 payments for goods or services in the same year.

Some US States require merchant reporting at a lower threshold: Vermont, Massachusetts, Virginia, Maryland: $600 USD in gross payment volume from sales of goods or services in a single calendar year regardless of the number of transactions; Illinois: $1,000 USD in gross payment volume from sales of goods or services in a single calendar year with at least 3 payment processes.

If you cross the IRS thresholds in a given calendar year, PayPal will send Form 1099-K to you and the IRS for that tax year, the following year.

We recommend not using the apps for workshop payment without consulting with a tax adviser. I know I will state that I prefer payment by checks and will continue good bookkeeping practices so I can demonstrate the amount of payments I received, all expenses I paid, and any organizer’s fee I retained.


With love,
Diane

Last modified: 2024-05-23 08:46:51+00