Cash App has become a huge alternative to Venmo to send payments back and forth between friends or businesses. In fact, a lot of freelancers use Cash App to collect invoices for services from small businesses. If you do, then you have to report your income to the IRS.
In this guide, we'll walk you through everything you need to know about receiving a Cash App 1099 such as when you'll receive a 1099, deductions you qualify for, and the taxes you'll need to pay. First, let's review the difference between personal and business Cash App accounts.
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Personal vs Business Cash App Accounts
Both accounts are free to set up. However, there are some big differences between a Cash App business account and a personal one. There are some features unique to a business Cash App account that you'll want to consider. Let's review some of them.
Key Differences Between Accounts
A personal account can send an unlimited amount of money without any transaction fees. A business account is charged 2.75% per transaction for receiving through the account.
Business accounts can create a custom payment link and share it with their customers. This allows non-Cash App users to send payments to your business. Another great feature is that you can include branding information like your website when you send and receive money.
Both Cash App accounts are allowed to do a standard bank deposit without for free as well as instantaneously for a 1.5% deposit fee.
Although business accounts can receive an unlimited amount of money, business account holders, who have verified their identity can only send up to $7500 per week.
When Will You Receive A 1099-K From Cash App?
Cash App for Business accounts will receive a 1099-K form through the Cash App. The requirements to receive a form 1099-K is if you accept over $20,000 and more than 200 payments per calendar year.
It should be noted that if your tax information is located in Massachusetts, Vermont, Maryland, Washington D.C., or Virginia, Cash App is required to issue a 1099-K for lower than the standard threshold. You'll receive a 1099-K and report to your State when you accept $600 or more in payments.
If your tax information is in Illinois, Cash App is required to issue a 1099-K and report to your state when you accept more than $1,000 with over 3 transactions. If your taxpayer information is associated with Missouri, you'll receive a Form 1099-K if you processed $1,200 or more in a year.
A 1099-NEC For Tax Reporting
If you don't receive a form 1099-K from Cash App but you still received non-employee payments via a business, you may still receive a 1099-NEC. A form 1099-NEC is required to be sent to freelancers who earned more than $600 in non-employee compensation.
President Biden passed a law for 2022 that lowers the minimum threshold for Form 1099-K, a form filed by the Payment Settlement Entities (PSEs) to report gross amounts of all reportable payment transactions. In 2022, the threshold will be lowered to $600 according to the American Rescue Plan instead of $20,000. Many folks who try to avoid a PayPal 1099 or other third-party settlement networks, will now receive a tax form and must report.
Since Cash APP was designed to send payments from user to user for personal transactions, you will not be liable for taxes if you send payments to friends or peers.
These include paying rent, splitting a cab or dinner fare, or receiving cash as a gift.
The IRS does not count these payments to be taxable income.
Cash App For Business Expenses
If you use Cash App to pay for transactions in regards to business expenses, then you'll need to keep clean records of the invoices, expense reports, and receipts. You'll need this information in case of an IRS audit. You would not want to get audited without tax receipts and detailed information for each invoice from your vendor, which needs to include the total amount paid / a brief description of the payment/
It's a good idea to closely monitor all your freelancing transactions, regardless if you use the app.
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If You Send Money To Contractors Using Cash App
If you send payments to other freelancers' services using Cash App, you'll need to directly send them a 1099 form so they can report their taxes. Cash App is considered a platform to send payments so it will NOT send out a 1099 form to freelancers you work with for tax reporting.
The requirements to send out 1099-NEC forms are:
The payment is paid to a non-employee of yours.
Payment is provided in exchange for services rendered during the course of your trade
The payment is made to a person, a partnership, an estate, or a company.
We hope this article helped to provide you with all the information you need to file your report for your Cash App taxes. Remember, all income should be reported to the IRS. If you need help, read our guide on how to file a 1099-K.
If you have any questions about reporting or filing your 1099 for Cash App, please contact a tax professional or CPA at the end of the year. A tax expert can help you avoid any trouble (or costly penalties!) with the IRS. Bonsai Tax can help you stay on top of all your deadlines and record all of your tax deductible expenses.