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$600 Threshold for IRS Tax Payments: 4 Things You Should Know

Did you know that there are approximately 300,000 IRS audits each year? Most often, audits are related to unreported income.

If you make payments or receive money through Cash App and Venmo, it's important to be aware of the $600 threshold associated with IRS payments. However, not everyone understands how it applies to them.

Let's explore everything you need to know about this type of tax payment obligation.

1. Failure to Comply Could Have Penalties

The IRS requires businesses and individuals to report payments made with Cash App, Venmo, or other digital payment methods when they exceed $600 within a given tax year.

This includes:

  • Payments made directly to employees
  • Reimbursements for business expenses
  • Contractor payments
  • Payments made to independent contractors and freelancers

If the IRS finds out that these payments were not reported, they could levy penalties or fines. Dealing with issues like this may put you at a higher risk of being audited in the future.

IRS back taxes could also prove to be an issue. In some cases, you can end up owing thousands of dollars in addition to fines and penalties. You also have to pay the current year's taxes when dealing with back taxes.

For many business owners, this could be a situation that is difficult or even impossible to overcome.

2. How to Report Payments

In order to comply with IRS regulations, you need to report all payments that exceed $600.

This can be done by issuing IRS Form 1099-MISC to the recipient of the payment. You may also receive a 1099-K from PayPal or Venmo for any payments you receive in excess of $20,000 and 200 transactions.

It's then your responsibility to report these payments to the IRS. Payments made via Cash App can be easily reported by downloading a transaction history from the app that includes all applicable information such as the payee name, address, the amount paid, and payment date.

This information can be used to fill out IRS Form 1099-MISC.

3. Making Sure You Stay Compliant

It's important to make sure that you remain compliant with IRS regulations in order to avoid any costly penalties or fines. Make sure to keep track of all payments made via Cash App, Venmo, or other digital payment methods and report them accordingly.

Additionally, be sure to keep all 1099 forms you receive for your records. It's best to have a folder on your computer that has all of this information in one location. If you are somebody who likes to deal with hard copies of documents, keep all of these together in a drawer, filing cabinet, etc.

It's also not a bad idea to keep both hard copies and digital copies for your records. This will help ensure that you have access to this information in multiple locations.

4. Work With a Tax Professional

If you're not sure how to report payments or need help with other tax matters, it's a good idea to work with a qualified tax professional. A professional can provide guidance and advice on the best way to stay compliant with IRS regulations.

Interestingly, many people overlook the utility that this option can provide. In practice, though, it can be one of the most powerful tools that you take advantage of when handling your tax responsibilities.

Be sure that you take this into consideration if you are on the fence about hiring someone to work with.

What Should I Look For in a Tax Professional?

Not all tax professionals are created equal. That's why it's so important for you to research different firms if you need help with taxes.

It's crucial to work with the right firm in order to avoid obstacles you may have otherwise encountered.

Their past reputation is one of the most important factors you need to consider.

A crucial attribute to check is how they respond to customer complaints. You won't want to hire someone who does not make an effort to resolve issues that arise.

They should have a proven track record of success if you are to hire them.

Working with inexperienced tax professionals comes with significant risk. If they make mistakes, you will be the one suffering the consequences. In some cases, you may not even know that there is an issue until months or years later.

It can often mean the difference between whether or not you get the results you want. Have they worked with people like you in the past?

Hiring the wrong professional can sometimes do more harm than good. Be sure to take a look at their billing structure.

This will help you avoid financial surprises in the future. Never work with someone you are not comfortable communicating with. This will likely prevent you from reaching your goals.

If they don't seem easy to get in touch with, move along with your search for IRS help. There is a good chance that you will need support during the process. If you can't contact them, you won't be able to use them as a resource to overcome the obstacles you face.

Don't Overlook IRS Compliance

Staying on top of the rules and regulations surrounding digital payments will help ensure your business remains compliant with IRS regulations. With a little extra effort, you can make sure that you stay in compliance and avoid any costly penalties or fines.

Looking for more information about what we can do? Get in touch with us at Tax Help Network today to see how we can help.