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After back-to-back delays, the IRS will move forward with a new tax filing rule for self-employed workers who get paid through third-party apps. If you earned $5,000 or more through PayPal, Venmo, Cash App, or a similar platform, the IRS will now require these companies to issue tax form 1099-K detailing your earnings.
This is not a new tax rule; it’s a tax inform change. If you earn income as a self-employed or self-employed person, you should already file and pay taxes on your total income, even if you don’t receive a 1099. The IRS is simply changing the reporting requirement to paid applications so it can monitor transactions that Otherwise they would not be declared.
This story is part of Taxes 2025CNET’s coverage of the best tax software, tax tips, and everything you need to file your return and track your refund.
“The tax and tax treatment requirements for taxpayers have not changed,” said Mark Steber, director of tax information at Jackson Hewitt. “The IRS has always considered this taxable income to be taxable and must be reported on a tax return.”
The IRS will only require third-party applications to report earned income; The tax agency is not interested in the money you have sent to your family or friends to pay the 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 when you file your taxes in 2025. Here’s everything you need to know about this reporting change.
Read more: Updated federal tax brackets from the IRS could boost your pay next year. here’s why
What is a 1099-K?
TO 1099-K is a tax form which reports income received through a third-party payment platform from non-permanent work, such as a side job, freelance arrangement, or contractor position where taxes are not withheld.
Currently, the IRS requires any third-party payment app, such as Cash App and Venmo, to send a 1099-K to the IRS and to individuals if they earned more than $20,000 in business payments in more than 200 transactions. If you regularly earn more than $20,000 in self-employed income, receive payments through Venmo, and receive more than 200 payment transactions, you may have received a 1099-K tax form before.
What is the new IRS 1099-K 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.
“Prior to 2024, the earnings 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 is planning a phased rollout, requiring payment apps to report self-employed people 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 rule for third-party payment apps delayed?
Originally scheduled to begin in early 2022, the IRS planned to implement a new reporting rule that would require third-party payment apps, such as PayPal, Venmo or Cash App, to report income of more than $600 or more per year to the tax agency. . The IRS has delayed this new reporting requirement in 2022 and again in 2023.
Because? Distinguishing between taxable and non-taxable transactions through third-party applications is not always easy. For example, money your roommate sends you via Venmo for dinner is not taxable, but money received for a graphic design project might be. The delay in 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 a statement. November 2023 Statement.
What payment applications are required to submit 1099-K?
All third-party payment apps where freelancers and business owners receive income must begin reporting transactions involving you to the IRS in 2024. Some popular payment apps include PayPal, Venmo, and Cash App. Other platforms that freelancers can use use, such as Fivver or Upwork, are also interested in starting to report the payments that freelancers receive throughout the year.
If you earn income through payment apps, it’s a good idea to set up separate PayPal, Cash App, or Venmo accounts for your professional transactions. This could prevent non-taxable charges (money sent from family or friends) from being mistakenly included in 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-Kregardless of whether you receive trading funds through the service or not. This is because Zelle doesn’t hold your funds in an account, like PayPal, Venmo, or Cash App do, but is instead used as a way to transfer money between bank accounts. If you get paid for your freelance or small business services 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. Rumors have circulated that the IRS was 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 reimbursements are not considered taxable. Some examples of non-taxable transactions include:
- Money received from a family member as a holiday or birthday gift.
- Money received from a friend to cover his or her share of a restaurant bill.
- Money received from your roommate or partner for your share of rent and utilities
Payments to be reported on a 1099-K should be marked as payments for goods or services from the supplier. When you select “send money to family or friends,” it will not appear on your tax form. In other words, that money from your roommate for half the restaurant bill is safe.
“This is just for self-employment income,” Steber said. “You should not receive a 1099-K for personal transactions, but be aware that some platforms may accidentally include personal transactions on the 1099-K and that will need to be corrected on users’ tax returns.”
Read more: Election 2024: Where each presidential candidate stands on the child tax credit
Will 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 won’t affect you. For example, if you buy a couch for your home for $500 and then sell it on Facebook Marketplace for $200, you won’t owe sales tax because it’s a personal item that you sold at a loss. You may need to show documentation of the original purchase to prove that you sold the item at a loss.
If you have a side business where you purchase items and resell them for a profit through PayPal or another digital payment app, profits over $5,000 will be considered taxable and reported to the IRS in 2024.
Be sure to keep good records of your online purchases and transactions to avoid paying taxes on any 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 application 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 are a business owner, you most likely have an EIN, but if you are a sole proprietor, freelancer, or freelancer, you will need to provide an ITIN or SSN.
In some cases, receiving a 1099-K can eliminate some of the manual work of filing your self-employment taxes.
Once this rule goes into effect, you will still be able to receive individual 1099-NEC forms if you were paid by direct deposit, check, or cash. If you have multiple clients paying you through PayPal, Venmo, Upwork, or other third-party payment apps and If you earn more than $5,000, you will receive one 1099-K instead of multiple 1099-NECs.
To avoid reporting confusion, be sure to track your earnings manually or with accounting software like Quickbooks.
