TechieTricks.com
IRS Change: Here’s What PayPal, Venmo and Cash App Users Need to Know About Their 2023 Taxes IRS Change: Here’s What PayPal, Venmo and Cash App Users Need to Know About Their 2023 Taxes
The IRS plans to finally implement its new 1099-K reporting requirement this year. That means anyone who receives $5,000 or more in income via... IRS Change: Here’s What PayPal, Venmo and Cash App Users Need to Know About Their 2023 Taxes


The IRS plans to finally implement its new 1099-K reporting requirement this year. That means anyone who receives $5,000 or more in income via third-party payment apps such as PayPal, Venmo, Cash App or Zelle in 2024 will receive a 1099-K next year. 

CNET 12 Days of Tips logo

Originally slated to take effect in 2022, this IRS reporting change will eventually have payment apps report income over $600 to the tax agency. Previously, third-party apps only sent 1099-Ks to users who received $20,000 in commercial payments across more than 200 transactions. 

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 instead of $600. The hope is that raising the threshold will reduce the risk of inaccuracies while also giving the agency and payment apps more time to work toward the eventual $600 minimum.

The IRS has delayed this new reporting rule for two years in a row to give payment apps more time to prepare for the change. One sticking point: 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. Money received for graphic design work you tackled is. The IRS paused implementation to avoid confusion and incorrect earnings being reported.

“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.

All of the pauses and changes have left many freelancers confused over what to expect for this tax season and beyond. If you earn self-employment income, here’s what you need to know.

What is the IRS $600 payment rule?

Under new reporting requirements first announced in the American Rescue Plan, third-party payment apps will be required to report earnings over $600 to the IRS. For 2024, only income over $5,000 will be reported. 

If you’re self-employed, you should already be paying taxes on your total income, even if you don’t receive a 1099 from all of your earnings. This isn’t a new rule; it’s a tax reporting change. The IRS will be switching the reporting requirement to payment apps so it can keep tabs on transactions that often go unreported. 

What the IRS 1099-K change means for your 2023 tax return

The IRS paused this reporting requirement for 2023. Of course, if you earn freelance income, you’re still required to report your earnings for the 2023 tax year when you file your taxes this year. You just won’t receive a 1099-K form from third-party apps unless you receive over $20,000 in payments across over 200 transactions in 2023.

Instead, you may receive 1099-NECs from any businesses you work with. Even if you don’t receive a tax form from a client, you’re still on the hook for reporting all of your self-employment income.

What the IRS 1099-K rule means for your 2024 tax return

As of now, for tax year 2024, you’ll receive tax form 1099-K if you earn more than $5,000 from a freelance client or side hustle through third-party payment apps, affecting the taxes you’ll file in 2025. The IRS may decide to again delay this rule or alter the threshold, so this requirement could still change. 

What payment apps are included in this IRS rule?

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, Zelle 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, Zelle, 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.

Will the IRS tax money sent to family or friends?

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 gift
  • Money received from a friend covering their portion of a restaurant bill
  • Money received from your roommate or partner for their share of the rent and utilities

Payments 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.

Will you owe taxes on items sold through Facebook marketplace?

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.

How 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. 





Source link

techietr