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After back-to-back delays, the IRS will go ahead with a new tax reporting rule for freelancers paid through third-party apps. If you have made $5,000 or more through PayPalVenmo, Cash App or a similar platform, the IRS now requires these companies to issue tax form 1099-K detail your income.
This is not a new tax rule; it is a tax report change. If you earn freelance or self-employment incomeYou must have already reported and paid taxes on your gross income, even if you didn’t receive a 1099. The IRS simply moved the reporting requirement to payment applications so it can monitor transactions that may not reportable.
“The tax and tax treatment requirements for taxpayers have not changed,” said Mark Steber, chief tax information officer for Jackson Hewitt. “This taxable income is always considered taxable by the IRS and must be reported on a tax return.”
The IRS will only require third-party apps to report earned income — the tax agency isn’t interested in the money you send your family or friends to pay the rent or split a dinner bill.
If you earned $5,000 or more through third-party payment applications this year, you should receive a 1099-K to use to report your earnings if you filing 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 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 hustle, freelance agreement or contractor position where taxes are not withheld.
The IRS now requires anything third party payment applications such as Cash App and Venmo that will send a 1099-K to the IRS and individuals when they earn more than $20,000 in commercial payments in more than 200 transactions. If you regularly make over $20,000 in freelance 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 new IRS 1099-K rule?
Under new reporting requirements first announced by the American Rescue Plan, third-party payment applications will eventually be required to report earnings of more than $600 to the IRS.
“Before 2024, the income threshold is $20,000 and 200 transactions to receive a 1099-K tax document,” Steber said.
For your 2024 taxes (which you’ll file in 2025), the IRS plans a phased rollout, requiring payment of freelancer and business owner reporting apps. income over $5,000 instead of $600. The hope is that raising the threshold will reduce the risk of inaccuracies while also giving the agency and payment applications more time to work toward the final $600 minimum.
Why was the third-party payment app tax rule delayed?
Originally set to begin in early 2022, the IRS plans to implement a new reporting rule that will require third-party payment applications, such as PayPalVenmo or Cash App to report income over $600 or more per year to the tax agency. The IRS has delayed this new reporting requirement to 2022 and again to 2023.
Why? Distinguishing between taxable and non-taxable transactions through third-party apps 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 gives payment platforms more time to prepare.
“We spent several months gathering feedback from third-party groups and others, and it became increasingly clear that we needed more time to effectively implement the new reporting requirements,” said IRS Commissioner Danny Werfel in a November 2023 statement.
What payment applications are required to send 1099-Ks?
All third-party payment applications where freelancers and business owners receive income are required to begin reporting transactions involving you to the IRS by 2024. Some popular payment apps include PayPal, Venmo and Cash App. Other platforms that freelancers can use, such as Fivver or Upwork, are also on the hook to start reporting payments that freelancers receive throughout the year.
If you earn through payment applications, it’s a good idea to set up separate PayPal, Cash App or Venmo accounts for your professional transactions. This will prevent unpaid bills — money sent from family or friends — from being included on your 1099-K in error.
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 does not issue 1099-Ksit doesn’t matter if 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 of that income on Schedule C on your tax return.
Does the IRS tax the money you send to family or friends?
No. Rumors have circulated that the IRS is withholding money sent to family and friends through third-party payment applications, but that is not true. Personal transactions involving gifts, favors or payments are not considered taxable. Some examples of non-reimbursable transactions include:
- Money received from a family member as a holiday or birthday gift
- Money received from a friend that covers their share of the restaurant bill
- Money received from your roommate or partner for their share of rent and utilities
Payments to be reported on a 1099-K should be flagged as payment for goods or services from the vendor. If you select “send money to family or friends,” it won’t show up on your tax form. In other words, that money from your roommate for his half of the restaurant bill is safe.
“It’s just for self-employment income,” Steber said. “You should not receive a 1099-K for personal transactions but be aware that some platforms may accidentally include personal transactions on the 1099-K and that should be corrected on the return to tax users.”
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Do you owe taxes when you sell items on Facebook Marketplace or Poshmark?
If you sell personal items for less than you paid for them and collect the money through third-party payment applications, 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 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 things and sell them for profit through PayPal or another digital payment appthen earnings in excess of $5,000 will be considered taxable and reported to the IRS in 2024.
Be sure to keep good records of your purchases and online transactions to avoid paying taxes on any unpaid income — and when in doubt, contact a tax professional for help.
What do you need to do to prepare for this reporting change?
Any payment applications you use may ask you to confirm your tax information, such as your employer’s identification number, individual tax identification number or Social Security number. If you own a business, you’ll 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, received a 1099-K can take some of the manual work out of filing your self-employment taxes.
Once this rule goes into effect, you may still receive individual 1099-NEC forms if you are paid by direct deposit, check or cash. If you have many clients who pay you through PayPal, Venmo, Upwork or other third-party payment applications and 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 income manually or using accounting software like Quickbooks.
