If you earned through PayPal, the Cash app, or Venmo this year, you can get a 1099-K. Here’s why

After repeated delays, the IRS is finally moving forward with a new tax reporting rule that could affect you if you earn freelance income or have a side hustle. The tax agency will need services such as PayPalVenmo or Cash App for issuing tax form 1099-K to anyone who earned more than $5,000 in revenue through third-party payment apps in 2024.

If you earn income from freelancing or self-employmentyou should already be paying taxes on your total earnings, even if you don’t get a 1099. This is not a new tax liability; it’s a tax reporting to change. The IRS will shift the reporting requirement to payment apps to track 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 you’ve sent to family or friends to pay rent or split the dinner bill.

This new tax reporting rule was first announced in 2021 to cover income over $600 paid through third-party payment apps. It was supposed to be released in 2022, but was delayed two years in a row. The IRS announced in 2023 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 individuals who earned more than $5,000 in income through third-party applications would receive a 1099-K.

“Prior to 2024, the earnings threshold was $20,000 and 200 transactions to receive a 1099K tax document,” said Mark Steber, chief tax information officer for Jackson Hewitt.

If you earned $5,000 or more this year through third-party payment apps, you should receive a 1099-K to report your income when file your tax return 2025. Here’s everything you need to know about this change in reporting.

Read more: Updated IRS tax brackets could boost your paycheck next year. Here’s why

What is a 1099-K?

A A 1099-K is a tax form who reports income earned through a third-party payment platform from a non-permanent job, such as a side hustle, freelance contract, or contractor position where taxes are not withheld.

The IRS currently requires any third-party payment applications such as Cash App and Venmo to send 1099-Ks to the IRS and individuals if they made more than $20,000 in commercial payments in more than 200 transactions. If you regularly earn over $20,000 in freelance income, pay through Venmo, and receive more than 200 payment transactions, you may have previously received a 1099-K tax form.

What is the new IRS 1099-K rule?

Under new reporting requirements first announced in the US bailout, third-party payment apps will eventually have to report earnings over $600 to the IRS.

For your 2024 taxes (which you’ll file in 2025), the IRS plans a phase-in, requiring payment apps to report freelancers and business owners earnings over $5,000 instead of $600. The hope is that raising the threshold will reduce the risk of inaccuracy while giving the agency and payment apps more time to work toward the final minimum of $600.

“The requirements for taxation and the tax treatment for taxpayers have not changed,” Steber said. “The IRS has always held that this taxable income is taxable and should be reported on the 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 has the tax rule been delayed for third-party payment apps?

Originally slated to begin in early 2022, the IRS planned to implement a new reporting rule that would require third-party payment applications such as PayPalVenmo or Cash App for reporting income over $600 or more per year tax agency. The IRS delayed this new filing 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 your roommate sends you via Venmo for dinner isn’t 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 that we needed additional time to effectively implement the new reporting requirements,” IRS Commissioner Danny Werfel said in Statement from November 2023.

What payment applications are required to send 1099-Xs?

All third parties payment applications 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 that freelancers can use, such as Fiveware or Upwork, are also ready to start reporting payments that freelancers receive throughout the year.

If you earn 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 tax-free expenses — money sent from family or friends — from being mistakenly included on your 1099-K.

Zelle customers will not receive a 1099-K

There is one popular payment application that is exempt from the 1099-K rule. Payment transfer service Zelle will not issue 1099-Xsregardless 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 do, but 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 the money you send to family or friends?

No. There have been rumors that the IRS has been cracking down on money sent to family and friends through third-party payment apps, but that’s not true. Personal transactions involving gifts, services or compensation are not considered taxable. Some examples of tax-free 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 you received from your roommate or partner for their share of rent and utilities

Payments to be reported on a 1099-K must be marked as payments for goods or services from a vendor. When you select “send money to family or friends”, it will not appear on your tax form. In other words, that money from your roommate for her half of the restaurant bill is safe.

“This is for self-employment income only,” Steber said. “You should not receive a 1099-K for personal transactions, but be aware that some platforms may accidentally include personal transactions in the 1099-K and this will need to be corrected on the user’s tax return.”

Read more: Election 2024: Where Every Presidential Candidate Stands on the Child Tax Credit

Will 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 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 Facebook Marketplace for $200, you won’t owe sales tax because it’s a personal item that you sold at a loss. You may need 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 profit through PayPal or another digital payment applicationthen earnings over $5,000 will be considered taxable and reported to the IRS in 2024.

Keep good records of your online purchases and transactions to avoid paying tax on any non-taxable income – and when in doubt, contact a tax professional for help.

What should you do to prepare for this change in reporting?

Any payment applications you use may ask you to verify your tax information, such as your employer identification number, individual tax identification number, or social security number. If you’re a business owner, you most likely have an EIN, but if you’re a sole proprietor, freelancer, or gig worker, you’ll provide an ITIN or SSN.

in some cases, receiving a 1099-K can deduct some of the manual labor when filing your self-employment tax.

When this rule goes into 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 apps and if you earn more than $5,000, you’ll get one 1099-K instead of multiple 1099-NECs.

To avoid any reporting confusion, make sure you track your earnings manually or with accounting software like Quickbooks.

More money advice