After several delays, the IRS will implement a new tax reporting rule for freelancers who get paid through third-party apps. If you earned $5,000 or more from it PayPalThe IRS now requires these companies to issue Venmo, Cash App or a similar platform Tax form 1099-K Details of your earnings.
This is not a new tax rule; it is a tax reporting change. If you Earn income from freelance or self-employed workYou should already report and tax your total income even if you don’t receive a 1099. The IRS is simply shifting reporting requirements to payment apps so it can keep track of transactions that might otherwise go unreported.
“The taxation and tax treatment requirements for taxpayers have not changed,” said Mark Steber, chief tax information officer for Jackson Hewitt. “This taxable income has always been considered taxable by the IRS and should be reported on a tax return.”
The IRS only requires third-party apps to report earned income—the tax agency isn’t interested in the money you sent to your family or friends to pay rent or split the dinner bill.
If you earned $5,000 or more through third-party payment apps this year, you should receive a 1099-K to report your income if you File your tax return in 2025. Here’s everything you need to know about this reporting change.
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What is a 1099-K?
A 1099-K is a tax form This reports income earned through a third-party payment platform from a permanent activity, such as a part-time job, a freelance contract, or a contractor position where taxes are not withheld.
The IRS currently requires some Third-party payment apps Some programs, such as Cash App and Venmo, send a 1099-K to the IRS and individuals if they have earned more than $20,000 in commercial payments in more than 200 transactions. If you regularly make more than $20,000 in freelance income, get paid through Venmo, and receive more than 200 payment transactions, you may have received a 1099-K tax form.
What is the IRS’s new 1099-K rule?
Under new reporting requirements first announced in the American Rescue Plan, third-party payment apps will now be required to report income over $600 to the IRS.
“Prior to 2024, the earning threshold was $20,000 and 200 transactions to receive a 1099-K tax document,” Steber said.
For your 2024 taxes (which you’ll file in 2025), the IRS plans a phased-in rollout that will require payment apps to report freelancers and business owners Earnings over $5,000 instead of $600. The hope is that raising the threshold will reduce the risk of inaccuracies while giving the agency and payment apps more time to work toward the eventual $600 minimum.
Why was the tax regime for third-party payment apps delayed?
Originally scheduled to launch in early 2022, the IRS planned to implement a new reporting rule that would require third-party payment apps PayPalVenmo or Cash App to report income of $600 or more per year to the tax office. The IRS has postponed this new reporting requirement to 2022 and again to 2023.
Why? Distinguishing between taxable and non-taxable transactions via third-party apps is not always easy. For example, money your roommate sends you for dinner via Venmo isn’t taxable, but money you receive for a graphic design project might be. The delayed launch gave payment platforms more time to prepare.
“We spent many months gathering feedback from third-party groups and others, and it became increasingly clear that we needed additional time to effectively implement the new reporting requirements,” IRS Commissioner Danny Werfel said in an interview Statement from November 2023.
What payment apps are required to send 1099-Ks?
All from third parties Payment apps In 2024, freelancers and business owners must begin reporting transactions involving you to the IRS. Popular payment apps include PayPal, Venmo and Cash App. Other platforms that freelancers may use, such as Fivver or Upwork, are also willing to report payments that freelancers receive throughout the year.
If you earn income through payment apps, we recommend setting up separate PayPal, Cash App, or Venmo accounts for your work transactions. This could prevent non-taxable fees – money sent from family or friends – from being incorrectly included on your 1099-K.
Zelle users will not receive a 1099-K
There is a popular payment app that is exempt from the 1099-K rule. Payment transfer service Zelle will not issue 1099-Ksregardless of whether or not you receive business funds through the Service. That’s because Zelle doesn’t store your money in one account like PayPal, Venmo, or Cash App does, but instead serves as a way to transfer money between bank accounts. If you are paid for your services as a freelancer or small business owner through Zelle, it is your responsibility to report all income on Schedule C of your tax return.
Does the IRS tax money you send to family or friends?
No. There have been rumors circulating that the IRS is cracking down on money sent to family and friends through third-party payment apps, but that’s not true. Personal transactions involving gifts, favors or refunds are not considered taxable. Some examples of non-taxable transactions are:
- Money given to a family member as a holiday or birthday gift
- Money received by a friend for his share of a restaurant bill
- Money you receive from your roommate or partner for their share of the rent and utilities
Payments reported on a 1099-K must be marked as payments for goods or services from the supplier. If you select “Send money to family or friends,” it will not appear on your tax form. In other words, your roommate’s money for half of the restaurant bill is safe.
“This only applies to income from self-employment,” said Steber. “You should not receive a 1099-K for personal transactions. However, note that some platforms may inadvertently include personal transactions on the 1099-K and this will need to be corrected on the user’s tax return.”
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Do you owe taxes if you sell items on Facebook Marketplace or Poshmark?
If you sell personal items for less than you paid for them and collect the money through third-party payment apps, these changes will not affect you. For example, if you buy a sofa for your home for $500 and later sell it on Facebook Marketplace for $200, you won’t have to pay taxes on the sale because it’s a personal item that you bring with you sold at a loss. You may be required to provide documentation of the original purchase to prove that you sold the item at a loss.
If you have a side hustle where you buy items and resell them for a profit via PayPal or another digital payment appthen income over $5,000 is considered taxable and reported to the IRS in 2024.
Make sure you keep good records of your purchases and online transactions to avoid paying taxes on non-taxable income – and if in doubt, contact a tax professional for help.
What should you do to prepare for this reporting change?
Any payment apps you use may ask you to confirm your tax information, such as: B. Your employer identification number, your individual tax identification number or your social security number. If you own a business, you most likely have an EIN, but if you are a sole proprietor, solo freelancer, or contract worker, you will need to provide an ITIN or SSN.
In some cases, Receiving a 1099-K can relieve some of the manual work involved in filing your self-employment taxes.
Once this rule goes into effect, you may continue to receive individual 1099-NEC forms if you were paid by direct deposit, check, or cash. If you have multiple customers who pay you through PayPal, Venmo, Upwork, or other third-party payment apps And If you make more than $5,000, you will receive one 1099-K instead of multiple 1099-NECs.
To avoid reporting confusion, make sure you track your earnings manually or with accounting software like Quickbooks.
