The IRS is set to implement new reporting requirements for third-party payment apps like PayPal, Venmo, and Cash App starting in 2024. This change aims to enhance tax compliance by tracking income earned through these platforms, particularly for freelancers and gig workers.
Key Takeaways
- New IRS rules will require payment apps to report earnings over $5,000 in 2024.
- The threshold for reporting will drop to $600 in 2025.
- Personal transactions between friends and family remain non-taxable.
Understanding The 1099-K Form
The 1099-K form is crucial for reporting income received through third-party payment platforms. It is specifically designed for non-permanent jobs, such as side hustles or freelance work, where taxes are not withheld.
Previously, the IRS required a threshold of $20,000 in commercial payments across more than 200 transactions to issue a 1099-K. However, under the new rules, the threshold will be significantly lowered to $5,000 for 2024, with a further reduction to $600 in 2025.
Why The Change?
The IRS’s decision to implement these new reporting requirements stems from the need to monitor transactions that often go unreported. Many individuals engage in side jobs or freelance work without accurately reporting their income. By requiring payment apps to report earnings, the IRS aims to close this gap.
Delays In Implementation
Originally scheduled to take effect in 2022, the rollout of the new 1099-K reporting requirements has faced delays. The IRS acknowledged the complexities involved in distinguishing between taxable and non-taxable transactions, which contributed to the postponements.
Which Payment Apps Are Affected?
All major third-party payment apps will be required to comply with the new IRS reporting rules. This includes:
- PayPal
- Venmo
- Cash App
- Zelle
- Other platforms like Fiverr and Upwork
Tax Implications For Personal Transactions
It’s important to note that personal transactions, such as money sent to friends or family, are not subject to taxation. For instance, if a friend reimburses you for dinner, that transaction is not taxable. The IRS will only track payments flagged as income for goods or services.
Preparing For The Changes
To prepare for these new reporting requirements, users of payment apps should ensure their tax information is up to date. This may include confirming their Employer Identification Number (EIN) or Social Security Number (SSN).
Additionally, freelancers and gig workers should maintain accurate records of their earnings and transactions to avoid confusion during tax season.
Conclusion
As the IRS moves forward with these new reporting requirements, it is essential for individuals who earn income through third-party payment apps to stay informed and prepared. Understanding the implications of the 1099-K form and the changes in reporting thresholds will be crucial for compliance in the coming years.
Sources
- Did You Make Money via PayPal, Venmo or Cash App This Year? The IRS Will Know About It – CNET, CNET.
