If you sell goods or services or book house, and get paid through Venmo, PayPal, Cash App or another pay application, you may have been surprised by a Variety 1099-K this time.
If you received a total of$ 5, 000 or more through a payment app in 2024, that company is now required to report that amount to you as well as to the IRS. This is one of the millions of taxpayers who received this form for the first time.
The common before 2024 was that a 1099-K had to be issued only if you received$ 20, 000 or more and had more than 200 purchases. Then the threshold dollar amount is substantially lower, and there’s no minimum purchase requirement.
And that threshold amount is slated to drop even more, with even more people likely to receive 1099-Ks next year: The$ 5, 000 reporting threshold for tax year 2024 drops to$ 2, 500 for 2025 and then plummets to$ 600 for 2026 and beyond.
Although the new monitoring requirements may come as a surprise to some freelancers or those who run area businesses, they were still required to file those taxes because they were the same as before.
What is the 1099-K?
The 1099-K type information payment for goods and services received from credit cards, smart pay software, online markets, auction sites, ride-hailing apps, crowdfunding sites and more. Type 1099-K must be sent to citizens by Jan. 31 of the following year. That is, you should have received your 1099-K for 2024 by the end of January 2025. ( See the , 2025 tax deadlines. )
If you sell goods or services, or rent out property, the money you earn is generally taxable income ( which, don’t forget, you can reduce by your costs, including , qualified business deductions ). Yet selling your own clothing or equipment may count as deductible money, the , IRS says, if you earned a gain.
If, however, you’re using Venmo or another payment app to pay your friend back for dinner, or to send a birthday present to your sister, this money shouldn’t be reported on a 1099-K. If you do receive a 1099-K, you should make sure the form only lists taxable income. ( See below for instructions on how to handle incorrect 1099-Ks. )
The income threshold for Form 1099-K was lowered to$ 600 as part of the American Rescue Plan Act ( ARPA ) of 2021. Prior to ARPA’s passage, only total payments of$ 20, 000 or more, and more than 200 transactions, required a Form 1099-K.
Tax experts and others voiced opposition to the lower payment thresholds during the ARPA debate, with the American Institute of Certified Public Accountants serving as a voice of caution for Congress regarding the lower threshold’s potential for confusion and errors. Ultimately, the IRS postponed the new reporting requirements in 2022 and 2023, allowing more time for the payment apps, officially known as third-party settlement organizations, to conform.
New 1099-K reporting requirements
To give third-party settlement organizations more time to comply with 1099-K reporting requirements, in 2024 the IRS announced a phased-in approach to the reporting thresholds:
2023 and earlier:$ 20, 000+ and 200+ transactions
2024:$ 5, 000+
2025:$ 5, 000+
2025:$ 2, 500+
2026:$ 600+
Not all payment apps are created equal.
While taxpayers can expect Form 1099-Ks from PayPal, Venmo, or Cash App, Zelle won’t be included in that list.
Similar to a wire transfer, the Zelle platform directly transfers funds from one bank account to another. Thus, it never has custody of the funds, it simply moves money”, says Monica Houston, a certified public accountant in Brentwood, Calif.
Therefore, Zelle transactions are not subject to reporting requirements.
Who is likely to receive a 1099-K?
Taxpayers who receive direct payments for goods or services are required to submit the Form 1099-K. Even though the amount you must report as$ 5, 000 for 2024 falls outside the reporting threshold, you may still receive a Form 1099-K in some situations.
Whether you receive a Form 1099-K or not, if you received taxable income from the sales of goods or services, you’ll need to report it on your tax return.
What if you get an incorrect 1099-K?
If you used a payment app to exchange money with friends and family, that exchange isn’t taxable, and you shouldn’t receive a Form 1099-K for those transactions.
If you do receive a 1099-K with these types of transactions reported, then you shouldn’t report these as taxable income. Instead, get in touch with the Form 1099-K issuer and request that they remove these items from the form and reissue a Form 1099-K that has been corrected. The IRS has  , instructions , on how to handle this situation.
It makes sense to have a strong accounting system that can clearly distinguish between business and personal payments if you use payment apps for both personal and business use.
To adopt a computerized accounting system, Houston advises using an Excel spreadsheet or checking out QuickBooks online. On your , income tax return, follow these instructions to ensure that you accurately report your income.
How to report income that was remitted using Form 1099-K?
Form 1099-K reports various types of payments, which affect how you report your income on your , Form 1040 , and related forms and schedules. If you sold personal items, you will need to file a tax return stating the sale. You cannot deduct the loss from your taxes if the item was sold for a loss, but you can deduct the item’s value from the income that was previously reported. However, if you sold an item for a profit, you must report the profit, which is the amount received less your cost, as taxable income.
On your tax return, whether you receive payments for goods sold, services rendered, or rental property, these must be reported. Freelancers, gig workers and self-employed people generally report income on Schedule C of their income tax returns. On Schedule E, rent payments are reported.
Houston emphasizes the value of keeping up with the latest tax law developments and encourages taxpayers to participate actively in the process. If they are receiving a Form 1099-K, I highly suggest that they seek the assistance of a qualified tax professional for the preparation of their final returns. The investment return is typically worthwhile in a variety of ways, according to Houston.
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