if you earned any freelance income this year and payment was made PayPalVenmo, Cash App or zelleThere will be new rules you will have to follow filling out your tax return next year.

You will receive it next year tax form 1099-K If you earned more than $5,000 in untaxed income and your payment was made through a third-party payment app. This rule has been delayed for two consecutive years, and this year will serve as a transition year to help payment practices prepare for reporting requirements.

It is possible that the IRS may decide to delay this rule again or change the threshold. For now, you should plan ahead to make sure you’re prepared come tax time.

if you freelanceEven if you don’t receive a 1099 on your entire earnings, you should already be paying taxes on your total income. This is not a new rule; it’s a tax reporting to change. The IRS will shift the reporting requirement to payment applications to keep track of transactions that often go unreported. If you’ve received payments through third-party payment apps this year, here’s what you need to know.

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What is a 1099-K?

A. 1099-K is a tax form Reporting income generated through a third-party payment platform from a non-permanent job, such as a side gig, freelance contract, or contractor position for which taxes are not withheld.

The IRS currently has no third party payment apps Companies like Cash App and Venmo will send 1099-Ks to the IRS and individuals if they make more than $20,000 in business payments in more than 200 transactions. If you regularly earn over $20,000 in freelance income, receive payments through Venmo, and have more than 200 payment transactions, you may have previously 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 your 2024 taxes (you’ll file in 2025), the IRS is planning a phased distribution that will require 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 inaccuracies and also give the agency and payment apps more time to reach the final $600 minimum.

Why has the 1099-K rule been delayed?

Originally scheduled to begin in early 2022, the IRS planned to implement a new reporting rule requiring third-party payment apps such as: PayPalVenmo, Cash App or zelleto report annual income of $600 or more to the tax office. However, the IRS delayed this new reporting requirement in 2022 and again in 2023.

From where? It’s not always easy to distinguish between taxable and non-taxable transactions through third-party applications. For example, money your roommate sends you via Venmo for dinner is not taxable, but money received for a graphic design project may be taxable. The delayed distribution gave payment platforms more time to prepare.

“We spent 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,” said IRS Commissioner Danny Werfel. November 2023 declaration.

What payment practices are included in this IRS rule?

All third party payment apps Where freelancers and business owners generate income, they must begin reporting transactions involving you to the IRS in 2024. Some of the popular payment apps include PayPal, Venmo, Zelle, and Cash App. Other platforms available to freelancers, such as Fivver or Upwork, are also on the verge of starting to report payments freelancers receive throughout the year.

If you generate income through payment apps, it’s a good idea to create separate PayPal, Zelle, Cash App, or Venmo accounts for your professional transactions. This can prevent non-tax expenses sent from family or friends from being accidentally included on your 1099-K.

Does the IRS send tax money to family or friends?

No. Rumors are circulating that the IRS is 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 refunds 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 or her portion of a restaurant bill
• Money received from your roommate or partner for their share of the rent and utilities

Payments to be reported on a 1099-K must be marked as payments for goods or services received from the vendor. When you choose “Send money to family or friends,” it won’t appear on your tax form. In other words, money from your roommate for half the restaurant bill is safe.

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Will you owe taxes on products sold through Facebook Marketplace?

If you sell your personal items for less than you paid for them and collect the money through third-party payment applications, these changes will not affect you. For example, if you buy a sofa for your home for $500 and then sell it on Facebook Marketplace for $200, you won’t owe taxes on the sale because it’s a personal item you sold at a loss. You may need to show original proof of purchase to prove that you sold the product at a loss.

If you have a side business where you buy items and resell them through PayPal for a profit, or another digital payment appEarnings over $5,000 will be considered taxable and will be reported to the IRS in 2024.

To avoid paying taxes on untaxed income, be sure to keep good records of your purchases and online transactions, and when in doubt, reach out to a tax professional for help.

How to prepare for this reporting change?

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 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, receive a 1099-K Self-employment can take some of the manual work out of filing your taxes.

After this rule goes into effect, you may continue to receive individual 1099-NEC forms if you are paid by direct deposit, check, or cash. If you have multiple clients who pay you through PayPal, Venmo, Upwork, or other third-party payment apps And If you earn more than $5,000, you will receive one 1099-K instead of multiple 1099-NECs.

Be sure to track your earnings manually or with accounting software like Quickbooks to avoid any confusion in reporting.

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