Summarize this content to 2000 words in 6 paragraphs Listen up, freelancers. This tax season, you may receive a 1099-K tax form if you made more than $5,000 through a third-party payment app such as PayPal, Venmo or Cash App.The IRS originally rolled out a plan to implement new reporting requirements for anyone earning over $600 via payment apps in 2023. After two years of delays, the tax agency has decided to implement a phased rollout, lifting the reporting threshold to $5,000 for the 2024 tax year.
This story is part of Taxes 2025, CNET’s coverage of the best tax software, tax tips and everything else you need to file your return and track your refund.
This reporting change means if you earned over $5,000 on an app like Venmo last year, the payment platform will send you and the IRS a 1099-K form. This gives the IRS a clearer picture of how much you earned in untaxed income this year, to ensure you’re paying the right amount of taxes.If you earn freelance or self-employment income, you’re likely no stranger to 1099 tax forms. Even if you don’t receive a 1099 for untaxed income you earned, you’re required to report any net earnings over $400 to the IRS when you file your tax return. The 1099-K tax change places a reporting requirement on payment apps so the IRS can keep better tabs on income earnings that might otherwise go unreported.”The taxation and tax treatment requirements for taxpayers have not changed,” said Mark Steber, chief tax information officer for Jackson Hewitt. “This income has always been considered by the IRS to be taxable and should be reported on a tax return.” CNETWhile the IRS will be able to keep a closer eye on freelance earnings, the tax agency isn’t interested in the money you’re sending to your family and friends. If you pay your roommate your portion of rent through Venmo, for example, these transactions are not considered taxable.Here’s everything you need to know about the new 1099-K tax reporting change. Updated IRS Federal Tax Brackets Could Boost Your Paycheck Next Year. Here’s WhyWhat is a 1099-K?A 1099-K is a tax form that reports income received via a third-party payment platform from a non-permanent job, such as a side hustle, freelance agreement or contractor position where taxes are not withheld. The IRS currently requires any 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 commercial payments across more than 200 transactions. If you regularly make over $20,000 in freelance income, are paid through Venmo, and receive more than 200 transactions in payments, you may have received a 1099-K tax form before.What’s the reporting threshold for a 1099-K for tax year 2024?For your 2024 taxes (which you’ll file in 2025), the IRS is planning a phased rollout, requiring payment apps to report freelancer and business owner earnings over $5,000 .”Prior to 2024, the earnings threshold was $20,000 and 200 transactions to receive a 1099-K tax document,” said Steber.Why was the IRS’s 1099-K tax rule delayed?Originally set to kick off at the beginning of 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 over $600 or more per year to the tax agency. The IRS delayed this new reporting requirement in 2022 and again in 2023.Why? Distinguishing between taxable and nontaxable transactions through third-party apps isn’t always easy. For example, money your roommate sends you through Venmo for dinner is not taxable, but money received for a graphic design project might be. The delayed rollout gave payment platforms more time to prepare.”We spent many months gathering feedback from third-party groups and others, and it became increasingly clear we need additional time to effectively implement the new reporting requirements,” said IRS Commissioner Danny Werfel in a November 2023 statement.Which payment apps are sending 1099-Ks? All third-party payment apps where freelancers and business owners receive income are required to begin reporting transactions involving you to the IRS in 2024. Some popular payment apps include PayPal, Venmo and Cash App. Other platforms freelancers may use, such as Fivver or Upwork, are also on the hook to begin reporting payments that freelancers receive throughout the year. If you earn income through payment apps, it’s a good idea to set up separate PayPal, Cash App or Venmo accounts for your professional transactions. This could prevent nontaxable charges — money sent from family or friends — from being included on your 1099-K in error.Zelle users will not receive a 1099-KThere’s one popular payment app that’s exempt from the 1099-K rule. Payment transfer service Zelle will not be issuing 1099-Ks, 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 Cash App do, and instead is used as a way to transfer money between bank accounts. If you are paid for your freelance or small business services through Zelle, it’s 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. Rumors have circulated that the IRS was cracking down on money sent to family and friends through third-party payment apps, but that isn’t true. Personal transactions involving gifts, favors or reimbursements are not considered taxable. Some examples of nontaxable transactions include: Money received from a family member as a holiday or birthday giftMoney received from a friend covering their portion of a restaurant billMoney received from your roommate or partner for their share of the rent and utilitiesPayments that will be reported on a 1099-K must be flagged as payments for goods or services from the vendor. When you select “sending money to family or friends,” it won’t appear on your tax form. In other words, that money from your roommate for her half of the restaurant bill is safe.”This is only for self-employment income,” said Steber. “You should not receive a 1099-K for personal transactions but be aware that some platforms could accidentally include personal transactions in the 1099-K and that will need to be corrected on the users tax return.” Election 2024: Where Each Presidential Candidate Stands on the Child Tax CreditWill you owe taxes if you sell items on Facebook Marketplace or Poshmark?If you sell personal items for less than you paid for them and collect the money via third-party payment apps, these changes won’t affect you. For example, if you buy a couch for your home for $500 and later sell it on Facebook Marketplace for $200, you won’t owe taxes on the sale because it’s a personal item you’ve sold at a loss. You may be required to show documentation of the original purchase to prove that you sold the item at a loss.If you have a side hustle where you buy items and resell them for a profit via PayPal or another digital payment app, then earnings over $5,000 will be considered taxable and reported to the IRS in 2024. Make sure to keep a good record of your purchases and online transactions to avoid paying taxes on any nontaxable income — and when in doubt, contact a tax professional for help.What should you do to prepare for this reporting change?Any payment apps you use may ask you to confirm your tax information, such as your employer identification number, individual tax identification number or Social Security number. If you own a business, you most likely have an EIN, but if you’re a sole proprietor, individual freelancer or gig worker, you’ll provide an ITIN or SSN. In some cases, receiving a 1099-K may take some of the manual work out of filing your self-employment taxes.Once this rule takes effect, you may still receive individual 1099-NEC forms if you were paid through direct deposit, check or cash. If you have multiple clients who pay you through PayPal, Venmo, Upwork or other third-party payment apps and you earn more than $5,000, you’ll receive one 1099-K instead of multiple 1099-NECs. To avoid any reporting confusion, make sure you’re tracking your earnings manually or with accounting software such as Quickbooks. More money advice
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