How the NEW Cash App Law Affects YOU
The world is modernizing its financial systems, and the IRS and U.S. Congress aren’t just sitting still and watching. The Ways and Means Committee is gearing up to keep pace with a new proposed rule, formally known as H.R. 3937 and commonly referred to as the Cash App Law. The centerpiece of H.R. 3937 focuses on adjusting the reporting thresholds that could make a significant impact on the financial landscape. Initially planned for immediate implementation this year, the timeline has been extended to 2024, giving businesses and individuals a longer grace period to adjust. The reasoning behind this is that $500 billion is reportedly underreported annually. If reported, the tax revenue from this amount could be available to the communities generating it for education, social security, and Medicare.
HOW THE CASH APP LAW AFFECTS YOU
- How Much Income You Report Earned Third-Party Payment Networks: Thanks to platforms like PayPal, Stripe, and Cash App, online transactions have seen a meteoric rise. Under the current rule, these payment networks report to the IRS only when a merchant surpasses $20,000 in transactions across more than 200 separate instances in a year. However, H.R. 3937 plans to reduce the transaction amount threshold to a mere $600. This substantial drop will cause a spike in barbers and independent contractors, especially the smaller players and freelancers, to be under the microscope of the IRS.
- Keeping Track of Transactions: Contractors, freelancers, and individuals engaging in digital transactions have reason to remain hopeful. The proposed new rule has a provision for lifting the reporting minimum from the current $600 amount to $5,000. While this might seem like a generous leap, please remember that cumulative, small transactions can quickly add up, pulling many more barbers into the reporting net.
WHAT CAN YOU DO TO PREPARE?
Barbers, Stylists, Personal trainers, and many other solopreneurs patiently wait as H.R. 3937 is in the hands of Congress, responsible for the final say. While the final verdict is pending, here is what can be done to prepare for the outcome.
- Individuals and businesses must start marking their payments accurately. Distinguishing transactions as "goods and or services" will be crucial to accurately track and report them. A slip-up or oversight could lead to unwanted scrutiny a.k.a. an audit by the IRS, or worse, potential tax penalties, which, in a worst-case scenario, could result in a lien being placed on your bank accounts.
- With the sheer volume of transactions to monitor (thanks to lowered thresholds), manually tracking them might soon become outdated. This highlights the importance of utilizing technology tools to centralize and manage payments efficiently. theCut is an all-in-one solution that seamlessly allows barbers to effectively manage their appointments AND the payments they receive from their clients. This allows for hassle-free record-keeping and income management so they can remain on top of their business and have a clear understanding of what they're making and what they owe as far as taxes and fees.
NEW RULES MEAN NEW OPPORTUNITIES
H.R. 3937 might seem like just another piece of legislation, but its implications are profound. It nudges us towards greater financial transparency aided by technology. Better financial insight improves access to credit and bank loans — which can improve your overall business or livelihood. As 2024 approaches, preparations for this shift will not be optional. After all, in the digital age, staying ahead of the curve is not just a good idea. It's necessary to remain relevant and competitive in the marketplace.