Freelancers Beware: PayPal, Cash App, and Venmo Income Over $5,000 Now Triggers 1099-K |

MORRIS COUNTY — Did You Make Over $5,000 on PayPal, Cash App, or Venmo this year? Here’s What You Need to Know About the New Tax Rule

If you’re a freelancer or side hustler who earned more than $5,000 through PayPal, Venmo, Cash App, or similar third-party payment platforms in 2024, expect a 1099-K tax form next year. Here’s why this change matters and how it affects you.

What’s Changing?

After years of delays, the IRS is enforcing a new tax reporting requirement. Starting with the 2024 tax year, third-party payment apps must issue Form 1099-K to individuals who earned over $5,000 in income through their platforms. This is part of an effort to ensure accurate tax reporting for income often overlooked in the past.

What You Need to Know:

• Not a New Tax: This isn’t a new tax but a shift in reporting requirements. The IRS is tasking payment platforms with reporting income directly, helping to monitor earnings that might otherwise go unreported.
• Who Does It Affect? The rule applies to freelancers, independent contractors, and anyone earning self-employment income of more than $5,000 through third-party apps. Transactions like splitting bills or paying rent with friends and family aren’t subject to this rule.
• Threshold Update: Previously, the threshold for receiving a 1099-K was $20,000 in earnings and 200 transactions. Now, the $5,000 threshold captures a wider range of earners.
• Transitional Period: The IRS initially planned to lower the reporting threshold to $600, but that requirement was delayed. Instead, 2024 serves as a transitional year with the $5,000 threshold in place.

What Does This Mean for Your Taxes?

If you earned $5,000 or more through third-party apps in 2024, you’ll receive a 1099-K form early next year. You’re already required to pay taxes on all freelance or self-employment income, regardless of whether you receive a 1099 form. This reporting change simply ensures payment platforms notify the IRS about your earnings.

The IRS is implementing a phased approach to lower the reporting threshold for Form 1099-K, which affects users of third-party payment platforms like Venmo, PayPal, and Zelle. Here’s the timeline:

• Tax Year 2024: Transactions exceeding $5,000 will be reported.
• Tax Year 2025: The threshold decreases to $2,500.
• Tax Year 2026 and Beyond: The threshold further reduces to $600.

Expert Insights

“Before 2024, the threshold was $20,000 and 200 transactions to trigger a 1099-K,” said Mark Steber, Chief Tax Information Officer at Jackson Hewitt. “This adjustment significantly increases the number of taxpayers who need to report their income.”

Plan for Tax Season

Understanding these changes will help you prepare for the 2025 tax filing season. Keep detailed records of your income and expenses, and consider using tax software or consulting with a professional to ensure compliance.