Here's what to do if a payment app reports your cash gifts to the IRS  (Thomas White/Reuters) | I have a year-end tax tip for you: Be prepared to prove money you received via PayPal or any other payment app — to split a dinner check or as a cash gift for your wedding — was not business income. Let me explain. As of 2022, all third-party payment processors in the United States, including Venmo and Cash App, must report payments of more than $600 a year received for goods and services. This isn't a new tax, just the IRS trying to catch people who are underreporting gig or self-employment income. Even if you hadn't previously received a Form 1099-K, you were still required to report any taxable income received through these platforms on your tax return. Before the reporting change, the app companies were required to submit a 1099-K only for transactions totaling more than 200 a calendar year with gross payments exceeding $20,000. Now a single transaction or multiple payments that exceed $600 can trigger a 1099-K. It's harder to avoid having the IRS find out your earnings when there's a digital trail. You can see how gig workers or any cash-driven business — including a teenager earning extra money babysitting or mowing lawns — getting paid via these apps could fly under the income radar. The reporting requirement was part of the American Rescue Plan Act of 2021, the $1.9 trillion pandemic stimulus package that also amended some sections of the Internal Revenue Code. [Payment apps have to tell the IRS about your side hustle if you make more than $600 a year] But — and this is important — money received through these payment apps from friends and relatives as personal gifts or reimbursements for expenses such as splitting a restaurant meal is not taxable. If, however, there's a mistake and personal payments get misclassified, the IRS says to sort it out with the app company. "Those who receive a 1099-K reflecting income they didn't earn should call the issuer," the agency said in a year-end tax tip. "The IRS cannot correct it." And so begins what I predict could be a hot mess next year when tax season opens if folks incorrectly receive 1099-K forms and then have to prove to the IRS that the money was not, in fact, payment for goods and services. [Keep track of your Venmo, PayPal and other payment app transactions in case the IRS comes asking] To read more about how a Boston bride-to-be worried that her wedding gifts could be taxed, click the link below. Your feedback If you have a personal finance question for Washington Post columnist Michelle Singletary, call 1-855-ASK-POST (1-855-275-7678). Send your comments and questions to colorofmoney@washpost.com, but due to the volume of mail, personal responses may not be possible. Please also note that comments or questions may be used in a future column, with the writer's name, unless a specific request to do otherwise is indicated. | 
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