New tax rules on CashApp, Venmo, Paypal

Many poker players use CashApp to pay buy-ins for tournaments (including home games) and then receive payouts on CashApp when they cash (i.e., win) in the tournament. Note that CashApp does specifically allow its electronic payment services to be used for gambling whereas Venmo does not.

Tax Rule Change
As of January 1, 2022, third-party payment network providers like Venmo, PayPal, and Cash App are required to send users (and the IRS) a 1099-K form for transactions made during the 2022 tax year by mail or electronically if the gross payments received during the year exceeds $600 or more.

Previously these providers were only required to send an IRS Form 1099-K for gross payments exceeding $20,000 and more than 200 transactions within a calendar year. It was also left up to businesses and individuals to make sure that they were reporting that income on their tax returns.

This new threshold change is for payments received for goods and services transactions and doesn’t include payments made for family or friends using PayPal or Venmo for dinner, gifts, and other purchases.

Implication for Gamblers
I am not close to 100% certain of these implications but I am communicating my best understanding at this time. I welcome interpretations from others. This is a new tax rule, and electronic payment companies and users will be grappling with this for some time.

What I understand is that if you have paid say, $3000, during a tax year on CashApp to buy into tournaments and have received winnings of $2500 in tournaments that CashApp will report gross payments received of $2500. You "will" be required to declare the $2500 as income and "may" need to pay taxes on it unless each transaction is explicitly labeled in a way that CashApp can discern that your payments of $3000 will offset your income of $2500. Furthermore, if your CashApp/Venmo/Paypal account is not declared as a "business account" then it is not clear that these providers will recognize any offsetting expenses against your income

A legal home poker game (in my state) is one in which the operator of the game does not take a rake or administrative fee for running the game. If you are running a legal weekly home game and during the year you receive on CashApp $50,000 from your players as buy-ins and have paid out $50,000 on CashApp to the winning players, then you may be in a world of IRS hurt if the players have not defined their CashApp payments as "buyin for 3/21 poker game." Further, your winning payouts may need to be defined as "Winner payout for 3/21 poker game" so that CashApp can discern that you have had zero net income for these events. Otherwise, IRS may insist that you pay tax on the $50,000 that you received from your poker players.

As I understand it, the IRS is relying on CashApp, Paypal and Venmo to make these determinations in issuing these 1099-K forms that report your gross income and transactions. They want to minimize the amount of work that they (the IRS) have to do, so they have apparently shoved the work load onto CashApp, Venmo and Paypal by defining this as part of their reporting requirements! Again, the nature of your account (personal vs business) may determine whether your outgoing payments can be defined as offsetting your incoming payments. And business accounts will naturally have different T&Cs and different fee structures.

Implications for Small Businesses
If you are operating a small business, such as
- performing mathematical analyses of casino games for a fee
- running a contest on the WOV site
you need to be aware of this reporting rule. For example, on a contest, receiving cash via Paypal and making payments via Venmo may create a situation in which your received payments are reported but your transfer of money to others is not.

I sometimes perform casino game analysis work for a paying customer and use some subcontractors (usually other WOV mathematicians) for certain parts of the analysis. If I am paid by my clients via Venmo and make payments to my subcontractors via Paypal, I may be screwed if only Venmo issues a 1044-K form to the IRS.

More discussion is needed!

Edit: I am not a CPA or a tax expert. Everyone is encouraged to perform their own research on this subject and to rely on the advice of certified tax experts.

And I thought it was just a way to tax the babysitter.

What about Zelle?

It’s another cash transfer service that is built into many bank apps.

Happily I have avoided Venmo, CashAp, and PayPal for this and other reasons. I assume they will be doing the same for every buy, sell, or transfer of crypto as well. Buckle up!

Quote: DJTeddyBear

What about Zelle?

It’s another cash transfer service that is built into many bank apps.
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I think that Paypal, Venmo and CashApp are called out in discussions about this matter simply because they are widely used. I imagine that this rule was meant to apply to all commercial electronic transfer systems that hold funds in a unique account outside of a bank. I have heard discussion that banks may have their own new reporting requirements for accounts that have greater than $600 deposited into them during a year, so Zelle may possibly be covered under that set of requirements as well.

I focus on CashApp because it is used so widely by the poker community as an alternative to carrying around large amounts of money.

If you are a gambler, everybody wants a piece of you, just on that basis. Not on the basis of "successful gambler", no, just "gambler"