March Madness, Paying Nannies And Household Help Off The Books And Other Madness
We are right in the middle of the college basketball season known as March Madness and leading up to April 18th which creates a tremendous amount of IRS madness. However, the basketball madness generates a flurry of gambling activity, which could lead to a little more intense and undesirable IRS madness.
Back in 2018, a U.S. Supreme Court decision struck down the federal ban on state authorization of sports betting. Currently 30 states, plus the District of Columbia, have legalized sports betting, according to the American Gaming Association. (Alabama is not one of those states that does permit sports betting.)
Sports-Betting Winnings Taxed As Income
Since sports betting is now permitted, most of the states that do allow it impose an excise tax on the sports-betting facility, and states with an income tax typically tax gambling winnings. So does the federal government. That said, I’m willing to bet that many people do not yet understand the income tax issues generated by winning wagers. It’s important to know that legal sports betting operations will likely report winnings to the IRS and the state authorities. If you hit it big, they may even do tax withholding from those larger jackpots. Be sure to keep track of and report your winnings so you don’t end up in trouble next year or get hit with an audit by Uncle Sam.
Nanny Nanny Boo-Boo
Now onto another source of madness. The IRS is getting into your Venmo and PayPal accounts and seeing who you’re paying for what. All those “off-the-books” payments to household help and your nanny will be front and center at the IRS as of this year. It’s all part of the American Rescue Plan Act (ARPA) passed in March 2021. Paying for goods and services — like babysitting or childcare — through third-party settlement organizations (like Venmo, PayPal and Cash App) will be reported to the IRS if those transactions total $600 or more in a year.
The IRS always wants to make it harder for businesses and individual to underreport their taxable income. The apps worked for a little while but no more, at least not until the next way to get around banks and traditional forms of reporting income is invented!
Avoid IRS Madness
It’s always a good idea to stay on the good side of the IRS. Most regular folks get on the wrong side unintentionally. While others scheme and dream of ways to intentionally see how far they can go and what they can get away with. If you’ve gotten on the IRS’s bad side and are looking to get back on their good side, give us a call. And if you think you might get called out for your Venmo or PayPal payments, let’s head the IRS off and make it impossible for them to set their sights on you. Give us a call. We’ve got plenty of time to help sort things out by April 18th.