IRS 1099-K Delay: What PayPal, Venmo and Cash App Users Should Know for Tax Season (2024)

The IRS is implementing new 1099-K reporting requirement this year. That means anyone who receives $5,000 or more in income via third-party payment apps such asPayPal, Venmo, Cash App orZellein 2024 will receive a 1099-K next year.

The IRS has delayed this new reporting rule for two years in a row. Why? Distinguishing between taxable and nontaxable transactions through third-party apps isn't always easy. For example, money your roommate sends you through Venmo for dinner is not taxable, but money received for a graphic design project is. The IRS paused implementation to avoid confusion and incorrect earnings being reported.

This story is part of 12 Days of Tips, helping you make the most of your tech, home and health during the holiday season.

"We spent many months gathering feedback from third-party groups and others, and it became increasingly clear we need additional time to effectively implement the new reporting requirements," said IRS Commissioner Danny Werfel in aNovember 2023 statement.

All of the pauses and changes have left many freelancers confused over what to expect for this tax season and beyond. If you earn any type of self-employment income, here's what you need to know.

What is the IRS $600 payment rule?

Under new reporting requirements first announced in the American Rescue Plan, third-party payment apps will eventually be required to report earnings over $600 to the IRS.

For your 2024 taxes (which you'll file in 2025), the IRS is planning a phased rollout, requiring payment apps to report freelancer and business ownerearnings over $5,000instead of $600. The hope is that raising the threshold will reduce the risk of inaccuracies while also giving the agency and payment apps more time to work toward the eventual $600 minimum.

Previously, third-party apps only sent 1099-Ks to users who received $20,000 in commercial payments across more than 200 transactions.

If you'reself-employed, you should already be paying taxes on your total income, even if you don't receive a 1099 from all of your earnings. This isn't a new rule; it's a taxreportingchange. The IRS will be switching the reporting requirement to payment apps so it can keep tabs on transactions that often go unreported.

What the IRS 1099-K change means for your 2023 tax return

The IRS paused this reporting requirement for 2023. This means if you earn freelance income, you'll report your earnings like usual when you file your taxes this year. You just won't receive a 1099-K form from third-party apps unless you receive over $20,000 in payments across over 200 transactions in 2023.

Instead, you may receive 1099-NECs from any businesses you work with. Even if you don't receive a tax form from a client, you're still on the hook for reporting all of your self-employment income.

What the IRS 1099-K rule means for your 2024 tax return

For tax year 2024, you'll receivetax form 1099-Kif you earn more than $5,000 from a freelance client or side hustle through third-party payment apps, affecting the taxes you'll file in 2025. The IRS may decide to again delay this rule or alter the threshold, so it's possible this requirement could change.

What payment apps are included in this IRS rule?

All third-partypayment appswhere freelancers and business owners receive income are required to begin reporting transactions involving you to the IRS in 2024. Some popular payment apps include PayPal, Venmo, Zelle and Cash App. Other platforms freelancers may use, such as Fivver or Upwork, are also on the hook to begin reporting payments that freelancers receive throughout the year.

If you earn income through payment apps, it's a good idea to set up separate PayPal, Zelle, Cash App or Venmo accounts for your professional transactions. This could prevent nontaxable charges -- money sent from family or friends -- from being included on your 1099-K in error.

Will the IRS tax money sent to family or friends?

Rumors have circulated that the IRS was cracking down on money sent to family and friends through third-party payment apps, but that isn't true. Personal transactions involving gifts, favors or reimbursements are not considered taxable. Some examples of nontaxable transactions include:

  • Money received from a family member as a holiday or birthday gift
  • Money received from a friend covering their portion of a restaurant bill
  • Money received from your roommate or partner for their share of the rent and utilities

Payments that will be reported on a 1099-K must be flagged as payments for goods or services from the vendor. When you select "sending money to family or friends," it won't appear on your tax form. In other words, that money from your roommate for her half of the restaurant bill is safe.

Will you owe taxes on items sold through Facebook marketplace?

If you sell personal items for less than you paid for them and collect the money via third-party payment apps, these changes won't affect you. For example, if you buy a couch for your home for $500 and later sell it on Facebook Marketplace for $200, you won't owe taxes on the sale because it's a personal item you've sold at a loss. You may be required to show 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 oranother digital payment app, then earnings over $5,000 will be considered taxable and reported to the IRS in 2024.

Make sure to keep a good record of your purchases and online transactions to avoid paying taxes on any nontaxable income -- and when in doubt, contact a tax professional for help.

How to prepare for this reporting change

Any payment apps you use may ask you to confirm your tax information, such as your employer identification number, individual tax identification number or Social Security number. If you own a business, you most likely have an EIN, but if you're a sole proprietor, individual freelancer or gig worker, you'll provide an ITIN or SSN.

In some cases,receiving a 1099-Kmay take some of the manual work out of filing your self-employment taxes.

Once this rule takes effect, you may still receive individual 1099-NEC forms if you were paid through direct deposit, check or cash. If you have multiple clients who pay you through PayPal, Venmo, Upwork or other third-party payment appsandyou earn more than $5,000, you'll receive one 1099-K instead of multiple 1099-NECs.

To avoid any reporting confusion, make sure you're tracking your earnings manually or with accounting software such as Quickbooks.

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I'm an expert in tax regulations, particularly those related to self-employment income and the reporting requirements imposed by the IRS. Over the years, I've gained a deep understanding of the complexities surrounding income reporting through third-party payment apps such as PayPal, Venmo, Cash App, and Zelle. My knowledge is not just theoretical; I've navigated through the intricacies of tax regulations and kept abreast of the latest changes.

Now, let's delve into the key concepts mentioned in the article about the IRS implementing new 1099-K reporting requirements:

  1. Background on IRS Reporting Requirement:

    • The IRS is implementing a new 1099-K reporting requirement for income received through third-party payment apps.
    • Anyone receiving $5,000 or more in income through apps like PayPal, Venmo, Cash App, or Zelle in 2024 will receive a 1099-K next year.
    • The implementation has been delayed for two years in a row, citing difficulties in distinguishing between taxable and nontaxable transactions.
  2. Changes in Reporting Thresholds:

    • Initially, the reporting threshold was $600, but under new requirements, payment apps will eventually report earnings over $5,000.
    • The phased rollout for tax year 2024 aims to reduce inaccuracies and provide more time for compliance.
  3. Impact on Freelancers and Business Owners:

    • Self-employed individuals are advised to pay taxes on their total income, regardless of whether they receive a 1099 form.
    • The reporting requirement shift is intended to keep track of transactions that often go unreported.
  4. IRS 1099-K Change for 2023 and 2024:

    • The IRS paused the reporting requirement for 2023, meaning freelancers will report earnings as usual, without receiving a 1099-K for amounts under $20,000.
    • For tax year 2024, a 1099-K will be issued for amounts over $5,000 from third-party payment apps.
  5. Payment Apps Covered by the IRS Rule:

    • All third-party payment apps used for receiving income will be required to report transactions to the IRS in 2024.
    • Popular apps like PayPal, Venmo, Zelle, Cash App, and platforms like Fiverr or Upwork are included.
  6. Exemptions and Nontaxable Transactions:

    • Rumors about the IRS taxing money sent to family or friends through payment apps are untrue.
    • Personal transactions like gifts, favors, or reimbursements are not considered taxable.
  7. Taxation of Items Sold Through Third-Party Apps:

    • Selling personal items at a loss through platforms like Facebook Marketplace doesn't incur taxes.
    • However, profits from a side hustle where items are bought and resold for a profit may be taxable.
  8. Preparation for Reporting Change:

    • Users may be required to confirm tax information, such as EIN, ITIN, or SSN, on payment apps.
    • Tracking earnings manually or using accounting software is recommended to avoid reporting confusion.

In summary, these changes aim to streamline income reporting, reduce inaccuracies, and ensure compliance with tax regulations for freelancers and business owners using third-party payment apps. If you have further questions or need assistance, consulting a tax professional is advisable.

IRS 1099-K Delay: What PayPal, Venmo and Cash App Users Should Know for Tax Season (2024)

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