This is a BattlePlan Virtual finance content marketing “Explainer with Comparison” and related information sample. First shared via Terri Bell and Associates, IN THE BLACK – a financial services Newsletter.
Peer-to-Peer Payment Apps | A Comparison
First let’s define peer-to-peer payments [P2P], then compare 3 of the most popular peer-to-peer payment applications or “apps”, and finally, review how payments received through peer-to-peer payment apps are taxed.
OK, here goes…
The Definition
Peer-to-Peer payment apps, also known as money transfer apps or mobile wallets, enable the sending of money FAST and for FREE via an email address or mobile phone number by entering an amount and hitting SEND. If you want to send and receive money, you’ll need to download a payment app to do so.
Preamble
Cash App, Venmo and Zelle make sending and receiving money easy but in different ways. These apps are designed to do the same thing—transfer funds from one person to another person. All three services are available for free, however some services do assess fees when you transfer funds to your account, and all three services provide smartphone apps you can use. Despite similarities, there are some important differences you’ll want to consider based on your needs and purpose.
Both, Cash App and Venmo offer a tangible cash card with the benefits of a P2P app and the functionality and the security of a debit card.
The cash cards connect to your Cash App or Venmo balance instead of to your checking account. You can use them the same way you would use a financial institution’s debit card. You must know that these cards withdraw funds from your Cash App or Venmo account, NOT from your checking account, so you’ll want to be very sure you have enough money in your payment app account to cover the charges you accrue or you will pay declined transaction and overdraft fees. This, you do not want!
The Comparison
Cash App PROS:
- Send and receive funds directly and quickly
- Cash App offers a bank account and a debit card, which can be used at ATMs
- Can invest in stocks and Bitcoin through the app
- Cash App facilitates Direct Deposits
- Cash App’s user interface is easy to use
- Cash App gives you the option to deposit money in your bank account or your linked debit card for FREE
Cash App CONS:
- App users can be susceptible to some forms of cybercrime, due to the digital nature of the payment service
- Cash App balances are not FDIC-insured therefore there is no guarantee that you’ll get your money back if something goes wrong.
- Cash App has very limited analytics and research features and is likely not a good platform for larger and more sophisticated investors
- If you use your debit card at an ATM, Cash App charges a $2 fee
NOTE:
Square is Cash App’s parent company.
Venmo PROS:
- No monthly or annual fees
- Ability to use Venmo app for online or in-store purchases
- Availability of Venmo-branded debit and credit cards
- Ability to maintain a cash balance in Venmo account
- App’s social media-style features may appeal to some users
- Venmo’s has extensive offerings, such as the ability to make in-store and online purchases
Venmo CONS:
- Fees for some services
- Privacy may be compromised unless you adjust privacy settings
- Money is not available instantly unless you pay a fee
- No ability to earn interest on money deposited with Venmo
- Transaction limits, such as a weekly maximum of $4,999.99 for person-to-person
NOTE:
Venmo’s parent company is PayPal.
Zelle PROS:
- No fees
- Availability through more than 1,000 banks and credit unions in the U.S.
- Quick transfers of money; typically, money sent through Zelle is available to the recipient in a matter of minutes
- Ability to earn interest on money held in checking or savings accounts tied to Zelle
- Transactions on Zelle are NOT taxable.
Here’s Why…
Only the P2P payment companies that deal with the settlement of funds in business transactions are required to issue 1099 forms to users.
Zelle doesn’t process payments but facilitates communication via messages between a financial institution and people making the payments.
Zelle states that it does not report transactions made on its Network to the IRS, even if the total is more than $600.
The new law to provide forms 1099K for information reporting does not apply to the Zelle Network
Zelle CONS:
- Inability to cancel a payment after it’s been sent if the recipient is enrolled in Zelle
- No availability of a Zelle-branded debit or credit card
- Zelle account can’t be linked to a credit card
- No ability to maintain a cash balance with Zelle
- Some transaction limits, set by your bank or credit union, not by Zelle
NOTE:
Zelle’s parent company is Early Warning Services, LLC, a financial technology company owned by seven of America’s largest banks: Bank of America, Truist, Capital One, JPMorgan Chase, PNC Bank, U.S. Bank and Wells Fargo.
New Tax Reporting Requirements Regarding P2P Payment Apps
According to the IRS, business income collected through a P2P app is no different from any other transaction that goes through a traditional bank account. Businesses are still required to report any payments received through Peer-to-Peer payment apps as taxable income when filing taxes.
Beginning January 2022, if you receive $600 or more in payments for goods and services in the current year, through a third-party payment network, such as Venmo, Cash App and other similar apps, your earnings will be reported to the IRS through Form 1099-K sent by the P2P platforms and income tax return [See image below].
This does not have any impact on international money transfer at this time. Existing laws that govern cross-border transactions will be applicable, including Gift Tax.
The tax rule only applies to payments received for sales of goods and services and does not include payments to friends and family.
An Image of IRS Form 1099 K for your reference:
Copy A of this form is provided for informational purposes only. Copy A appears in red, similar to the official IRS form.
Below are 2 very informative links that shed light on taxation related to the use of P2P payment apps. If after reviewing the information included in these links you have further questions please contact your Accountant.
https://www.compareremit.com/news/guide-to-new-2022-tax-implications-for-p2p-app-users/
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