What's New for Family Child Care Providers Who Use Electronic Payment Apps?

Are you a family child care provider who receives payments from parents who use electronic payment apps such as Venmo, Zelle, or Cash App? If so, there is a new IRS rule that may affect you.

Starting in 2022, these payment apps will send you a Form 1099-K if you collected a total of $600 or more from all parents using these apps in 2022. You will receive the Form 1099-K in January 2023.

What does this mean?

You will not owe more in taxes.

You are always required to report all income you receive from parents enrolled in your program. This new rule does not change that. You will not owe more in taxes because of this rule as long as you are reporting these parent payments as income.

This new rule is intended to reduce tax fraud by small businesses who may not have been reporting all their income in the past.

If you use one of these payment apps, they may start asking you for additional information such as your Employer Identification Number (EIN) or Social Security number. All providers should get their own EIN to avoid having to give out your Social Security number.

If you use one of these payment apps yourself to purchase items for personal use, you will not receive a Form 1099-K. To keep your business and personal records separate, you may want to set up different apps, one for business purchases and one for personal purposes.

Let's look at an example of how this works. Let's say at the end of 2022 you received $35,000 in parent fees by check or cash and you received another $10,000 through Venmo. You will receive a Form 1099-K from Venmo that will say you received $10,000. The IRS will also receive a copy of this form. This alerts the IRS that you earned that amount and they may look for it if they are reviewing your tax return.

You must report all $45,000 as income on your tax return. If you are self-employed, you may want to enter the $10,000 on line 6 (Other Income) on Schedule C rather than lumping it with all your other income on line 1. In doing so, this may reduce the chances of an audit because the IRS will see that you did report the Venmo income.

In the end, this new law is no big deal. As long as you report all your income on your tax return, including payments received from these payment apps, there is nothing to worry about.

Tom Copeland - www.tomcopelandblog.com

Image credit: https://ravenjiang.medium.com/venmo-dcdff06454fe