Do you make money via Venmo, Paypal or Cash App? That’s why you have received 1099-K

If you are a freelancer, the owner of a business or someone who occasionally makes money on the sideYou need to know about the new tax reporting requirement for PayPal, Venmo, Cash App and other third -party payment applications.

IRS requires third -party payment apps to send you a 1099-K tax form If you have made more than $ 5,000 on the platform in 2024, this change of reporting will give the IRS a clearer picture of how much you earned with a non -taxable income this year to help you pay your taxes correctly. For the 2025 tax year, the threshold will drop to $ 2500.

“The requirements for tax processing and tax processing have not changed,” said Mark Steber, chief tax information on Jackson Hughit. “This income has always been regarded by IRS as taxable and should be reported as a tax return.”

If you win freelance income or self -employmentYou are probably not unknown 1099 Tax FormsS You are required to report each net profits over $ 400 of IRS when you Submit your tax returnEven if you do not receive 1099. Changing the 1099-K tax requires a requirement to account for payment applications so that IRS maintains better sections for income revenue that may otherwise remain undeclared.

The new 1099-k tax reporting rule applies only to the income you have earned from third-party payment applications. IRS does not tax the money you send to your friends or family. Here is everything else you need to know about the new change of tax reporting from 1099-K.

Read more: Updated IRS Federal Tax Brackets may increase your salary next year. Therefore

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What is 1099-K?

A 1099-K is tax form This takes into account income received through a third -party payment platform from inconsistent work, such as a side bustle, a freelance agreement or a contractor’s position where taxes are not retained.

IRS currently requires any Payment Applications to Third Parties Like Cash App and Venmo, they send 1099-k to IRS and individuals if they have earned over $ 20,000 trade payments for more than 200 transactions. If you regularly make over $ 20,000 in freelance income, you are paid via Venmo and get more than 200 payments transactions, you may have received a 1099-k tax form before.

What is the rule of 1099-K for tax 2024?

For your 2024 taxes (which you will submit in 2025), IRS is planning a gradual implementation, requiring payment applications to report to freelass and business owner profit over $ 5,000S “Before 2024, the profit threshold was $ 20,000 and $ 200 transactions to receive a 1099-k tax document,” Steber said.

Why did IRS 1099-K tax rule slow down?

Initially will start in the beginning of 2022, IRS plans to implement a new reporting rule that requires third -party payment applications, such as PaypalVenmo or Cash App to account for incomes of over $ 600 or more annually to the tax agencyS IRS delayed this new reading requirement in 2022 and again in 2023

Why? Distinguishing between taxable and non -taxable transactions through third -party applications is not always easy. For example, the money your roommate sends you via Venmo for dinner are not taxable, but it may be money for a graphic design project. The delayed launch gave the payment platforms more time to prepare.

“We spent many months collecting feedback from third-party groups and others. We have become increasingly clear that we need extra time to effectively meet the new reporting requirements,” IRS Commissioner Danny Verfel said in A November 2023 statementS

Which payment apps will send 1099 ks?

All third parties Payment applications When freelancers and business owners receive income, they are required to start reporting transactions associated with you in IRS in 2024, some popular payment applications include PayPal, Venmo and Cash App. Other freelancers can be used, such as Fivver or Upwork, are also on the hook to start reporting payments that freelancers receive throughout the year.

If you earn income through payment apps, it is a good idea to set up separate PayPal, Cash App or Venmo Accounts for your professional transactions. This could prevent non-taxable fees, sent by family or friends-to be included in your 1099-k error.

There is one popular payment app that is released from the 1099-K rule. Payment transfer service Zelle will not issue 1099 ksWhether you receive business funds through the service or not. This is because Zelle does not hold your funds in an account, such as PayPal, Venmo or Cash App, and is used as a way to transfer money between bank accounts. If you are paid for your free or small business services via Zelle, your responsibility is to account for the entire income as scheduled C of your tax return.

How to submit 1099-K?

Will include the income you earned on your 1099-K by submitting a Schedule c (an IRS form that reports profits or losses from your business). If you submit the brands with the help of online tax software, it will take you by accounting for your income.

Be careful not to double your income. For example, if you have earned $ 10,000 in freelance income from a customer, you will probably get a 1099-NEC tax form For compensation without employees who describe in detail your revenue. If your customer pays through PayPal, you will also receive 1099-K from the payment app for the same revenue. You do not need to take into account your profit twice.

If you often do not receive tax forms from your customers, you can use 1099-K in its place to make sure you are reading your full income. If you have income from multiple customers or worry that your 1099-K is incorrect, reach an accountant to review your tax return and income documents before submitting.

Is the money from IRS taxes you send to your family or friends?

No. Rumors have spread that IRS is being destroyed by money sent to family and friends through third -party payment applications, but this is not true. Personal transactions, including gifts, services or recovery, are not considered taxable. Some examples of non -taxable transactions include:

• Money received from family member as a holiday gift or birthday
• Money received by a friend covering the part of the restaurant account
• Money received from your roommate or partner for their rent and utility services

Payments that will be reported on 1099-K must be marked as payments for goods or services by the Provider. When you choose “Send Money to Family or Friends”, this will not appear in your tax form. In other words, this money from your roommate for her half of the restaurant bill is safe.

“This is only for self -employment revenue,” Steber said. “You should not receive 1099-k for personal transactions, but keep in mind that some platforms may accidentally include personal transactions in 1099-k and this will need to be adjusted to the users’ tax return.”

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Does the rule apply to the items sold on Facebook or Poshmark?

If you sell personal belongings for less than you have paid for them and collect the money through payments to third parties, 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 will not owe taxes on sale because it is a personal item you sold in the loss. You may need to display documentation for the original purchase to prove that you sold the item at a loss.

If you have a side bustle where you buy items and resell them with a profit via PayPal or Another Digital Payment AppThe profits over $ 5,000 will then be considered taxable and will be reported to IRS in 2024. Remember to store good records of your purchases and online transactions to avoid paying taxes on any unexplained income and when you doubt you will be Contact a tax specialist for help.

What if you get a form 1099-K by error?

Now that the tax season is here, it is possible to get 1099-K for money that is not income. For example, if your roommate pays you $ 1,000 a month through Venmo rent, Venmo may send you 1099-K for a $ 12,000 profit. In this case, the IRS says you should contact the payment platform and notify them of the error using the phone number in the lower Lefthand angle of the form.

You should then be issued adjusted 1099-K. If you do not have 1099-k adjusted before the deadline for tax filing, you can still file your tax return. IRS tells the Follow these three steps:

1. Report the amount specified in List 1, Part 1, Red 8z: Other IncomeS List this as “Form 1099-K obtained by error” and then add the total amount. For the example above, it will be “$ 11,000”.
2. Adjust the amount to list 1, part II, line 24z: Other adjustments. List this as “Form 1099-K received by error” and list the amount.
3. Keep a copy of your 1099-K for your recordingS Keep this in case IRS has questions.

Following the above process, it will cancel the wrong 1099-k. However, if IRS believes that the income is legitimate, it can mark or audit your return. Be sure to contact a tax specialist if you have any questions.