After successive delays, the IRS is transferring ahead with a brand new tax reporting rule for freelancers who receives a commission by third-party apps. For those who made $5,000 or extra by PayPal, Venmo, Money App, or an analogous platform, the IRS will now require these firms to concern a 1099-Ok tax kind detailing your earnings.
This isn’t a brand new tax rule; it’s a tax reporting change. For those who earn earnings from freelancing or self-employment, you have already got to report and pay taxes in your complete earnings, even in the event you do not obtain a 1099. The IRS is just transferring the reporting requirement to payroll functions in order that it could actually hold tabs on transactions that may in any other case go unreported.
This story is a part of Taxes 2025CNET’s protection of the most effective tax software program, tax recommendation, and the whole lot else you have to file your return and monitor your refund.
“The tax necessities and tax remedy for taxpayers haven’t modified,” mentioned Mark Steber, chief tax info officer for Jackson Hewitt. “This taxable earnings is all the time thought-about by the IRS to be taxable and have to be reported on a tax return.”
The IRS will solely require third-party apps to report earned earnings — the tax company is not excited about cash you have despatched to household or associates to pay lease or break up a dinner invoice.
For those who earned $5,000 or extra by third-party fee apps this yr, it’s best to get a 1099-Ok to make use of to report your earnings once you file your tax return in 2025. Here is the whole lot you have to know for this reporting change.
Learn extra: The IRS’s up to date federal tax brackets may enhance your paycheck subsequent yr. Here is why
What’s a 1099-Ok?
A 1099-Ok is a tax kind that experiences earnings acquired by a third-party fee platform from a non-permanent job, resembling a facet hustle, a contract deal, or a contractor place the place taxes usually are not withheld.
The IRS presently requires each third-party fee app like Money App and Venmo to ship a 1099-Ok to the IRS and to people in the event that they earned greater than $20,000 in business funds in additional than 200 transactions. For those who usually make over $20,000 in freelance earnings, receives a commission by Venmo, and obtain greater than 200 fee transactions, you might have acquired a 1099-Ok tax kind earlier than.
What’s the new IRS 1099-Ok rule?
Beneath the brand new reporting necessities first introduced within the American Rescue Plan, third-party fee apps will finally be required to report earnings over $600 to the IRS.
“Previous to 2024, the earnings threshold was $20,000 and 200 transactions to obtain a 1099-Ok tax doc,” Steber mentioned.
On your 2024 taxes (which you may file in 2025), the IRS is planning a phased rollout, requiring fee apps to report self-employed and enterprise proprietor earnings over $5,000 as a substitute of 600 {dollars}. The hope is that elevating the edge will cut back the chance of inaccuracies, whereas additionally giving the company and fee apps extra time to work towards the eventual $600 minimal.
Why was the third get together fee app tax rule delayed?
Initially set to launch in early 2022, the IRS deliberate to implement a brand new reporting rule that will require third-party fee apps, resembling PayPal, Venmo or Money App, to report earnings over $600 or extra per yr on the tax company. . The IRS has delayed this new reporting requirement to 2022 and once more to 2023.
Why? Distinguishing between taxable and non-taxable transactions by third-party functions is just not all the time straightforward. For instance, cash your roommate sends you through Venmo for dinner is just not taxable, however cash acquired for a graphic design undertaking could also be. The delayed rollout gave fee platforms extra time to arrange.
“We’ve got spent many months gathering suggestions from third-party teams and others, and it has turn into more and more clear that we’d like extra time to successfully implement the brand new reporting necessities,” mentioned IRS Commissioner Danny Werfel. in a November 2023 assertion.
What fee functions are required to ship 1099-Ks?
All third-party fee apps the place freelancers and enterprise homeowners obtain earnings are required to start reporting transactions involving you to the IRS in 2024. Some widespread fee apps embrace PayPal, Venmo, and Money App. Different platforms that freelancers can use, resembling Fivver or Upwork, are additionally poised to begin reporting funds that freelancers obtain all year long.
For those who earn earnings by fee apps, it is a good suggestion to create separate PayPal, Money App, or Venmo accounts for your online business transactions. This will forestall nontaxable charges — cash despatched by household or associates — from being mistakenly included in your 1099-Ok.
Zelle customers is not going to obtain a 1099-Ok
There’s one widespread fee software that’s exempt from the 1099-Ok rule. The Zelle fee switch service is not going to concern a 1099-Ok, whether or not you obtain enterprise funds by the service or not. That is as a result of Zelle does not maintain your funds in an account like PayPal, Venmo or Money App do, and is as a substitute used as a strategy to switch cash between financial institution accounts. In case you are paid on your freelance or small enterprise companies by Zelle, it’s your accountability to report all earnings on Schedule C of your tax return.
Does the IRS Tax Cash You Ship to Household or Mates?
No. Rumors have circulated that the IRS was cracking down on cash despatched to household and associates by third-party fee apps, however that is not true. Private transactions involving presents, favors or reimbursements usually are not thought-about taxable. Some examples of non-taxable transactions embrace:
- Cash acquired from a member of the family as a vacation or birthday current
- Cash acquired from a pal masking their share of a restaurant invoice
- Cash acquired out of your pal or accomplice for his or her share of lease and utilities
Funds to be reported on a 1099-Ok ought to be marked as funds for items or companies from the seller. When you choose “ship cash to household or associates”, it is not going to seem in your tax kind. In different phrases, that cash out of your roommate for her half of the restaurant invoice is secure.
“That is only for self-employment earnings,” Steber mentioned. “You shouldn’t obtain a 1099-Ok for private transactions, however bear in mind that some platforms could by accident embrace private transactions on the 1099-Ok and this may must be corrected on the customers’ tax return.”
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Will you owe taxes in the event you promote gadgets on Fb Market or Poshmark?
For those who promote private gadgets for lower than you paid for them and accumulate the cash by third-party fee apps, these modifications will not have an effect on you. For instance, in the event you purchase a sofa on your residence for $500 and later promote it on Fb Market for $200, you will not owe gross sales tax as a result of it is a private merchandise that you simply bought at a loss. You might be requested to indicate documentation of the unique buy to show that you simply bought the merchandise at a loss.
If in case you have a facet hustle the place you purchase gadgets and resell them for a revenue through PayPal or one other digital fee app, then earnings over $5,000 can be thought-about taxable and reported to the IRS in 2024.
Be sure you hold good data of your on-line purchases and transactions to keep away from paying taxes on any nontaxable earnings — and when doubtful, contact a tax skilled for assist.
What must you do to arrange for this reporting change?
Any fee software you utilize could ask you to substantiate your tax info, resembling employer identification quantity, particular person tax identification quantity or social safety quantity. For those who personal a enterprise, you’ll more than likely have an EIN, however in case you are a sole proprietor, freelancer, or gig employee, you’ll present an ITIN or SSN.
In some instances, receiving a 1099-Ok can take a number of the handbook work out of submitting your self-employment taxes.
After this rule goes into impact, you should still obtain particular person 1099-NEC kinds in the event you have been paid by direct deposit, examine, or money. If in case you have a number of prospects paying you thru PayPal, Venmo, Upwork, or different third-party fee apps AND you earn greater than $5,000, you’ll obtain one 1099-Ok as a substitute of a number of 1099-NECs.
To keep away from any reporting confusion, ensure you’re monitoring your earnings manually or with accounting software program like Quickbooks.
