In the world of barbering, cash has long been king. But as the industry spirals deeper into the digital age, third-party payment processors like CashApp, Venmo, Zelle, and PayPal have become the new royalty. However, this convenient tool comes with a catch – one that's making financial management and tax filings a lot trickier for shop owners, school instructors, booth renters and suite leasers.

Third-party payment processors are becoming more and more strict on requiring users to provide either an Employer Identification Number (EIN) or Social Security Number (SSN) to create or maintain an account. This isn't just a formality – it's the IRS tightening its grip on the digital economy.

These payment processors are required by law to report your earnings to the IRS via Form 1099-K. This form is like a tattoo on your financial arm – permanent and very visible to the taxman.

How does it work? Let's break it down:

1. You accept payments through a digital platform.
2. The platform keeps track of your transactions.
3. If you meet certain thresholds (more on that later), the platform sends a 1099-K to both you and the IRS.
4. The IRS now has a record of your income, whether you report it or not.

It's like having a reality tv show of your finances and the IRS tunes in every night at 8:00pm.

Now, you might be thinking, "So what if they know? I'll just... not file taxes." Hold that thought.

When your SSN or EIN is linked to an account, it's like leaving a trail of hair clippings right to your door. The IRS's algorithms are getting smarter by the day, and they're excellent at connecting dots.

*If You Don't Know Now You Know: The IRS generally has three years from the date you file your return to audit you. But don't get too comfortable – this period can be extended to six years in certain cases. For instance, if you underreport your income by more than 25% of the gross income shown on your return, the IRS gets an extra three years to take a closer look at your finances.

And if you think you can outsmart the system by not filing at all? Think again. For non-filers, there's no time limit. The IRS can come knocking at any time, and trust us, they're patient - allowing interest and penalties to pile up, so by the time they come knocking, that unpaid tax bill could look more like a small mortgage.

The point is this: While you might not see immediate consequences, remember that the IRS plays the long game. Those unpaid taxes could be silently accruing interest and penalties, turning a manageable sum into a financial nightmare down the road.

It's like letting a bad haircut grow out – it only gets worse with time.

For those who use booking platforms, it's even easier for the IRS to track your income. Most booking platforms like Squire, TheCut, Booksy, Vagaro, StyleSeat, Gloss Genius, and Square are built on third-party payment processors (most commonly Stripe). So if you're using these to book clients and accept payments, you're already in the system. The IRS doesn't need to be Sherlock Holmes to figure out your income – it's all there in black and white.

Lastly, as if federal reporting wasn't enough, states are getting in on the action too. The thresholds are constantly changing per state and is usually lower than the federal threshold which is $5,000. This means if you make more than $5,000 per year using these third-party payment processors – you're either in the system or will be soon enough.

*For a full state-by-state table breakdown text "table" to 888.572.2017.