If you’re a freelancer, business owner, or someone who occasionally earns money on the side, it’s important to be aware of the new tax reporting requirement for PayPal, Venmo, Cash App, and other third-party payment users. These apps are now required to send you a 1099-K tax form if you made more than $5,000 on the platform in 2024. This change will provide the IRS with a clearer picture of your untaxed income to ensure proper tax payment. The threshold will drop to $2,500 for the 2025 tax year.
If you earn freelance or self-employment income, you’re probably familiar with 1099 tax forms. It’s essential to report any net earnings over $400 to the IRS, even if you don’t receive a 1099. The new 1099-K reporting requirement places the responsibility on payment apps to help the IRS keep track of income that may otherwise go unreported.
This change does not affect personal transactions, such as money sent to friends or family. Payment apps like PayPal, Venmo, and Cash App will now be required to report earnings over $5,000 to the IRS. Other platforms like Fivver or Upwork will also be reporting payments made to freelancers.
It’s recommended to set up separate accounts for professional and personal transactions to avoid errors on your 1099-K form. Zelle, a payment transfer service, is exempt from this reporting rule. If you receive income through Zelle, you are responsible for reporting it on your tax return.
When filing your taxes, be sure to include the income listed on your 1099-K on Schedule C. If you receive multiple tax forms for the same income, you do not need to report it twice. Personal transactions are not taxable and should not be included on the 1099-K form. If you receive a 1099-K in error, contact the payment platform to correct the issue.
Overall, these changes aim to provide a more accurate picture of income earned through third-party payment apps to ensure proper tax reporting and payment. Be sure to keep records of your transactions and consult a tax professional if needed.