Listen up, independents. This tax season, you may receive a 1099-K tax form if you earned more than $5,000 by connecting a third-party payment app like PayPal, Venmo, or Cash App.
The IRS originally set out a plan to implement new reporting requirements for anyone who earns over $600 through payment apps in 2023. After a two-year delay, the tax agency decided to phase in and raise the reporting threshold to $5,000 for the 2024 tax year .
This story is part of 2025 taxesCNET’s coverage of the best tax software, tax tips, and everything else you need to file your return and track your refund.
This news change means that if you read more than $5,000 on an app like Venmo last year, the payment platform will send you and the IRS a Form 1099-k. This gives the IRS a clearer picture of how much you earned in a tax-free vehicle this year to make sure you’re paying the right taxes.
If you read Freelance or Self-Employed Income, you’re probably no stranger to 1099 tax forms. Even if you don’t receive a 1099 for the tax-free disability you earned, you must report any net earnings over $400 to the IRS when you File your tax return. The 1099-K tax change puts a reporting requirement on payment apps so the IRS can keep better tabs on Instruome earnings that might otherwise go unreported.
“The tax and tax treatment requirements have not changed,” said Mark Steber, chief tax officer for Jackson Hewitt. “This income has always been considered taxable by the IRS and should be reported on taxes.”
While the IRS will be able to keep an eye on your freelance earnings, the IRS is not interested in the money you send to your family and friends. For example, if you pay your captor back your portion of the back, these transactions are not considered taxable.
Here’s everything you need to know about the new 1099-K tax reporting change.
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What is a 1099-K?
The 1099-K is a tax form that reports income that does not apply to a third-party payment platform from non-permanent work such as a side hustle, freelance gig, or contractor position where taxes are not withheld.
The IRS currently requires any third-party payment apps, such as Cash App and Vendo, to send a 1099-K to the IRS and individuals if they earned more than $20,000 in commercial payments in more than 200 transactions. If you regularly earn more than $20,000 in discretionary income, get paid through VENMO, and receive more than 200 payment transactions, you may have received a 1099-K tax form before.
What is the reporting threshold for 1099-K for tax year 2024?
For your 2024 taxes (which you’ll file in 2025), the IRS plans to phase in and require payment apps to report freelance and business earnings over $5,000.
“Prior to 2024, the threshold was $20,000 in earnings and 200 transactions to receive a 1099-K,” Steber said.
Why was the IRS 1099-K tax rule delayed?
Originally set to begin in early 2022, the IRS planned to implement a new reporting rule that would require third-party payment apps like PayPal, Venmo or Cash App to report income of $600 or more annually to the tax agency. The IRS delayed this new reporting 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, money a roommate sends you Vendo for dinner isn’t taxable, but money they receive for a graphic design project might be. The delayed rollout gave the payment platform more time to prepare.
“We have spent many months gathering feedback from third-party groups and others, and it has become increasingly clear that we need additional time to effectively implement the new reporting requirements,” IRS Commissioner Danny Werfel said in November 2023.
Which payment apps send 1099-k?
All third-party payment apps where freelancers and business owners are required to begin reporting transactions involving you to the IRS in 2024. Popular payment apps included PayPal, Venmo, and Cash. Other platforms freelancers may use, such as Fivver or Upwork, are also on the hook to start reporting what freelancers receive throughout the year.
If you get inbound through payment apps, it’s a good idea to set up a separate PayPal, Cash or VENMO account for your professional transactions. This could prevent no-non-bagging-money from family or friends of friends that was included in the mistaken 1099-K.
Zelle users will not receive a 1099-K
There is one popular payment application that is exempt from the 1099-K rule. Zelle’s payment transfer service will not issue a 1099-K, regardless of whether you receive business funds through the service or not. That’s because Zelle doesn’t hold your funds in an account like PayPal, Venmo, or the Cash App, and is instead used as a way to transfer money between bank accounts. If you are 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.
Will the IRS tax money you send to family or friends?
No. There have been rumors that the IRS has seized money sent to family and friends by 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 their portion of the restaurant bill
- Money received from your roommate or partner for a share of the back and utilities
Payments that will be reported on the 1099-K must be marked as payments for goods or services from the vendor. When you select “Send money to family or friends” your tax form will not be called. In other words, the money from your room for half the restaurant bill is safe.
“It’s only for self-employment income,” Steber said. “You should not receive a 1099-K for personal transactions, but be aware that some platforms might accidentally include personal transactions in the 1099-K, and that will need to be correct on the users’ tax return.”
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Will you owe taxes if you sell items on Facebook marketplace or poshmark?
If you’re selling personal items for less than you paid for them and collecting money through third-party payment apps, you won’t be affected by these changes. For example, if you buy a couch for your home for $500 and later sell it on the Facebook marketplace for $200, you won’t owe taxes on the dirty becaus it’s a personal item that you sold at a loss. You may be required to show original veroda documentation to prove that you sold the item at a loss.
If you have a side business where you buy items and sell them for profit through PayPal or another digital reward, earnings over $5,000 will be considered taxable and reported to the IRS in 2024.
Make sure you keep good records of your purchases and online 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 applications you use may ask you to confirm your tax information, such as a utility number, individual tax identification number, or Social Security or Social Security number. If you own a business, you most likely have an EIN, but if you are a sole proprietor, individual freelancer, or gig worker, you will provide an ITIN or SSN.
In some boxes, the 1099-K may receive some of the manual work from filing your self-employment taxes.
Once this rule takes effect, you can still receive individual 1099-NEC forms if you were paid by direct deposit, check, or cash. If you have multiple customers who pay you through PayPal, Venmo, Upwork, or other third-party payment applications and If you earn more than $5,000, you will receive one 1099-K instead of multiple 1099-necs.
To avoid any reporting confusion, make sure you track your earnings manually or with birthday software like QuickBooks.
