Zelle’s Tax Loophole Puts Small Businesses at Risk in 2023

As we approach tax season, many small business owners are taking advantage of Zelle and assuming that their little reporting loophole will help them avoid paying taxes. Some other small business owners are wondering if they should be accepting Zelle payments at all. The short answer is yes, but there are a few things you need to know first to ensure that it’s not an issue later down the road.

What is Zelle and how does it work?

Zelle is a mobile payment platform that enables customers to send and receive money directly from their bank accounts. Zelle can be accessed through participating banks’ mobile apps or through the Zelle website. It is becoming increasingly popular for people to use Zelle to make purchases with small businesses, as it is transferred directly from their bank account.

What are the taxes that apply to Zelle payments?

Zelle payments are subject to the same taxes as other forms of payment. Any income earned through Zelle will be subject to federal, state, and local taxes, depending on the jurisdiction. Depending on the amount of money received, individuals may also be required to pay self-employment taxes for the income earned from Zelle payments. Additionally, some states may require additional taxes for Zelle payments based on their individual laws. It is important to understand all applicable taxes related to Zelle payments before using it as a source of income.

Will Zelle provide 1099-K Forms?

The Internal Revenue Service (IRS) considers any income you receive, including payments made through Zelle, to be taxable. As such, the IRS requires that you report any Zelle payments you receive as income on your tax return. Depending on the amount of money you receive, this may be reported on a 1099-K form.

Zelle believes that this rule does not apply to them, so you should be aware that it is your responsibility to report these payments and to pay any applicable taxes. Failure to do so could lead to penalties and interest accrued on the unpaid taxes. “And so I think those taxpayers are really putting themselves at risk of getting a tax bill they can’t afford or the possibility of having to do an audit”, says tax attorney Adam Brewer.

Whether Zelle files or not, the responsibility of taxpayers does not change. Critics believe that the IRS requiring reports on transactions of $600 or more could hurt small businesses, but that doesn’t have to be the case. The network operator of Zelle does confirm that it’s the consumer’s responsibility to report to the IRS, but he also advises them to speak to a tax professional. This would ensure that small business owners are not attempting to make their own decisions as it pertains to taxes.

What are the IRS regulations for small businesses?

Small businesses must comply with IRS regulations when it comes to taxes. This includes registering for a valid Employer Identification Number (EIN), filing and paying taxes on time, and properly reporting income and expenses. Employers may also be required to withhold taxes from employee wages and make matching contributions to certain employee benefit plans.

Additionally, businesses that accept payments through Zelle must also report those payments as taxable income and remit the relevant taxes to the IRS. Keeping up with the IRS regulations is essential for small businesses to remain in compliance and avoid complications. It is advised that small businesses do not assume that Zelle is the way to avoid paying taxes because the IRS is taking things seriously this time around.

Resources And Links For More Information

If you’re looking for more information on Zelle and how it can be used to pay taxes to the IRS, there are a few online resources that can help. The IRS website offers detailed instructions on how to set up a payment and make payments to the IRS. Additionally, Zelle has published FAQs about their service and how it can be used to pay taxes. Finally, if you have any questions or need further assistance, the IRS has a dedicated customer service line that can answer all of your inquiries.

While the convenience of Zelle can be tempting when it comes to your small business, make sure that you understand the requirements that come with using it. Zelle is fully aware of the IRS regulations, but they do not see a reason to provide their users with 1099-K forms because it saves them the hassle of distributing and keeping certain records. So, it’s up to you as the owner of your small business to decide whether or not it’s right for you.