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New Law Affects Transactions Through Payment Apps

women showing money, cash, dollars, women smiling

The local gym has been selling energy drinks to members. But they’re not charging at the point-of-sale. They’re having buyers send their money through the person-to-person (P2P) payment app, Venmo. While it’s unlikely they make much off beverage sales (it’s a really small gym), a new tax law could have them and many other merchants feeling a bit of a sting when tax day rolls around in 2023.

hand holding cash, cash, dollars

Getting Paid from Payment Apps

Venmo, PayPal, Cash App and other P2P payment platforms are required to report commercial transactions of over $600 annually to the Internal Revenue Service. This is a significant change from the previous threshold of $20,000. The tax code, instituted January 1, 2022, was signed into law as a part of the COVID-19 response bill, the American Rescue Plan Act.

Merchants and online retailers, even those small-time Etsy stores, are likely to be affected by the new $600 reporting law. Any individual or organization reaching the threshold in commercial payments will receive a 1099-K and be expected to claim that money in their upcoming tax filings. And perhaps the scariest part is these applications are putting it on their users to correctly (or incorrectly) mark purchases as commercial sales.

What Now?

For some merchants, like the local gym, providing payments through Venmo or other apps is primarily about convenience. But, if you’re going to pay a processing fee, at least you might save on taxes. P2P payment applications, with their $20,000 tax cap provided an opportunity to save money on at least one aspect of business.

Fortunately, P2P payment applications are not the only solution for merchants seeking ways to keep the bulk of their profits. Instead, savvy merchants can turn to Cash Discounting Programs.

Based on the Durbin Amendment in the 2010 Dodd-Frank Act, cash discounting allows merchants to include a service charges in the cost of goods purchased using a credit or debit card. Rather than avoiding transaction fees completely, retailers using cash discounting are able to keep the entirety of every single purchase made – whether its cash or card.

So, while the new tax law might mean retailers may want to shy away from using P2P payment apps as a way to save money on non-cash purchases, it doesn’t mean they have lost every avenue for keeping the bulk of their profits. Implementing a cash discounting program can help businesses avoid paying processing services out of their own profits. After all, if you have to pay taxes on it, you might as well make as much money as you can.

If your business is looking for a way to pivot away from cash apps, save money and increase profits while providing customers with the option to pay by cash or card, cash discounting is the solution you’ve been searching for.

With Star Financial Services’ Unlimited Cash Discounting Program, businesses save thousands of dollars on card processing fees, without turning away customers who prefer to pay with a card. The program includes a free card reader and unlimited card processing on Star’s PCI level 1 compliance platform, so you can rest assured transactions are being processed with the highest level of security, plus 24-hour monitoring.


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