The IRS is finally moving forward with a new tax reporting rule that will require similar services PayPalVenmo or Cash App to issue 1099-K tax form to freelancers and scammers who have earned more than $5,000 through third-party payment apps. This means the IRS will know if you earned money from freelance or contract work and will not report it on your tax return.
If you earn income from self-employment or freelance workyou should already pay taxes on your total earnings, even if you don’t receive a 1099 form. This is not a new tax requirement; it’s a tax report edit. The IRS will shift the reporting requirement to payment apps so we can keep tabs on transactions that often go unreported.
This new rule will only require third-party apps to report earned income—the IRS isn’t interested in money sent to family or friends to pay rent or split a dinner bill.
This new tax reporting rule was first announced in 2021 to capture income above $600 paid through third-party payment apps. It was supposed to be released in 2022, but was delayed two consecutive years. In 2023, the IRS announced that 2024 would be a transition tax year, to give payment apps more time to prepare for the change. Instead of the $600 minimum, only people who earned more than $5,000 through third-party apps would receive a 1099-K.
“Before 2024, the earnings threshold was $20,000 and 200 transactions to receive a 1099-K tax document,” said Mark Steber, tax information manager for Jackson Hewitt.
If you earned $5,000 or more through third-party payment apps this year, you should receive a 1099-K to report your earnings when submit your tax return in 2025. Here’s everything you need to know about this reporting change.
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What is a 1099-K?
A 1099-K is a tax form that reports income received through a third-party payment platform from a non-permanent job, such as a side job, freelance contract, or contractor position where taxes are not withheld.
The IRS currently requires one third-party payment apps like Cash App and Venmo to send a 1099-K to the IRS and 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 freelance income, get paid via Venmo, and receive more than 200 payment transactions, you may have already received a 1099-K tax form.
What is the new IRS 1099-K reporting 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.
For 2024 taxes (which you’ll file in 2025), the IRS is planning a phased rollout, requiring payment apps to report the freelancer and business owner 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.
“The taxation and tax treatment requirements for taxpayers have not changed,” Steber said. “This taxable income has always been considered taxable by the IRS and should be reported on a tax return. The new change requires online platforms to provide 1099-Ks to both their users and the IRS at a lower threshold than in previous years .”
Why was the 1099-K rule delayed?
Originally scheduled for early 2022, the IRS planned to roll out a new reporting rule that would require third-party payment apps, such as PayPalVenmo or Cash App to report income of $600 or more per year to the revenue agency. The IRS delayed this new reporting requirement in 2022 and again in 2023.
Why? Distinguishing between taxable and non-taxable transactions via third-party apps isn’t always easy. For example, money your roommate sends you via Venmo for dinner isn’t taxable, but money you receive for a graphic design project might be. The delay in implementation has given payment platforms 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 more time to effectively implement the new reporting requirements,” IRS Commissioner Danny Werfel said in a November 2023 statement.
Which payment apps are included in this IRS rule?
All third party payment app where freelancers and entrepreneurs receive income are required to start reporting transactions involving you to the IRS in 2024. Some popular payment apps include PayPal, Venmo, and Cash App. Also other platforms freelancers can use, such as Fivver or Upwork, are ready to start reporting the payments freelancers receive throughout the year.
If you make money through payment apps, it’s a good idea to set up separate PayPal, Cash App, or Venmo accounts for your business transactions. This could prevent nontaxable charges — money sent by family or friends — from being mistakenly included on 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-Kwhether or not you receive business funds through the service. That’s because Zelle doesn’t keep your funds in one account, like PayPal, Venmo, or Cash App do, 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.
Does the IRS tax money sent to family or friends?
No. There have been rumors that the IRS was cracking down on money sent to family and friends via 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 portion of the restaurant bill
- Money received from your roommate or partner for his or her share of rent and utilities
Payments that will be reported on a Form 1099-K must be marked as payments for goods or services provided by the supplier. When you select “send money to family or friends”, the amount will not appear on your tax form. In other words, your roommate’s money for half of the restaurant bill is safe.
“This is only for self-employment income,” Steber said. “You should not receive a 1099-K for personal transactions, but please note that some platforms may accidentally include personal transactions in the 1099-K and this will need to be corrected on users’ tax returns.”
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Will you owe taxes on items sold on Facebook Marketplace?
If you sell personal items for less than what you paid and collect the money through third-party payment apps, 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 won’t have to pay taxes on the sale because it’s a personal item that you sold at a loss. You may be asked 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 buy items and resell them for a profit through PayPal or another digital payment appearnings 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 nontaxable income, and if you have any concerns, contact a tax professional for assistance.
How to prepare for this change in relationships
Any payment app you use may ask you to confirm your tax information, such as your Employer Identification Number, Individual Taxpayer Identification Number, or Social Security Number. If you own a business, you most likely have an EIN, but if you are a sole proprietor, freelancer, or temporary worker, you will provide an ITIN or SSN.
In some cases, receive a 1099-K could eliminate some of the manual work involved in filing self-employment taxes.
Once this rule goes into effect, you may continue to receive individual 1099-NEC forms if you were paid by direct deposit, check, or cash. If you have multiple customers who pay you via PayPal, Venmo, Upwork, or other third-party payment apps AND you earn more than $5,000, you will receive a 1099-K instead of multiple 1099-NECs.
To avoid any reporting confusion, be sure to track your earnings manually or with accounting software like Quickbooks.
