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"A tax credit is more valuable than a tax deduction" since it's a dollar-for-dollar Until now, businesses and gig workers
offset of an income tax liability, Talbot noted. that collect payments through these
apps could avoid paying taxes
Unlike the ERTC, which is refundable, the R&D tax credit is not. R&D credits simply by not reporting the income.
also must be amortized, over five years for U.S.-based investments; 25 years for The apps were required to only
non-U.S. investments. (The Tax Cuts and Jobs Act of 2021 changed some rules report payments for account holders
for R&D tax credits, including adding the amortization requirement, despite who received payments exceeding
strong lobbying from business groups.) Costs that can be claimed to secure $20,000, using IRS Form 1099-K, the
these tax credits include salaries, contractor fees, supplies and software. same form payment processors use
to file with the IRS for their business
Despite being available for decades to small and large companies, R&D tax customers.
credits are not widely used. The U.S. Chamber of Commerce estimated that
fewer than three in 10 qualifying businesses claim R&D tax credits each year. The American Rescue Plan Act
Many of the same reasons given for not pursuing ERTCs—such as the need for lowered that threshold to $600,
detailed documentation and amended tax return filings—are at play. effective Jan. 1, 2022. So any income
a business or gig worker receives
Companies that want to pursue these tax credits should seek out CPAs who through the apps this year exceeding
really understand the process. "About half the CPAs we talk with have never $600 will be reported to the IRS.
heard of the R&D tax credit," Kem said.
The ETA's Talbott said the move
Clamping down on tax scofflaws targets tax scofflaws. "What hasn't
While tax credits diminish the tax burden on some small businesses, others changed is the treatment of income,"
may find Uncle Sam taking a bigger bite out of their revenues if they rely on he said. "The money has always been
person-to-person payment apps, like PayPal, Venmo and Square's Cash App. taxable to recipients. Now [these
platforms] will have to report to the
IRS when businesses receive more
than $600 in transactions in a year.
The goal is to eliminate tax evasion."

The IRS said the reporting rule won't
apply to transactions involving family
and friends. But it's not clear how
distinctions will be made. PayPal, and
its mobile payment app Venmo, now
encourage users to tag transactions
as being personal/friends and family
or for goods and services, which is
supposed to help. PayPal also has
begun asking business users to
provide their Employer ID numbers,
or in the case of sole proprietors,
individual tax ID numbers, if they
use its platforms to collect payments
for goods and services.

It's also unclear if the IRS has the
resources or resolve to pursue
businesses not properly reporting
P2P transactions. A 2021 report by the
U.S. Treasury Department's Inspector
General revealed that in 2017, nearly
170,000 taxpayers did not report up to
$29 billion of payments that had been
reported to the IRS by three leading
P2P platforms.
Patti Murphy is senior editor at The Green
Sheet and self-described payments
maven of the fourth estate. Follow her on
Twitter @GS_PayMaven
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