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1099-K IRS Tax Delay: What Last Minute Filers Who Use PayPal and Venmo Need to Know

1099-K IRS Tax Delay: What Last Minute Filers Who Use PayPal and Venmo Need to Know

If you don't have File your taxes So far this year, you have until midnight on April 15 to file your tax return. If you received any freelance income through PayPal, Venmo, Cash App or Zelle this year, you may be confused about what the 1099-K changes mean for your current tax return.

Originally set to begin in early 2022, the IRS plans to implement a new reporting rule that will require third-party payment apps, such as PayPalVenmo, Cash App or Zeleto report annual income of $600 or more To the tax agency. But the IRS has delayed this new reporting requirement. For this tax season. So if you were waiting on a 1099-K. File your tax return. — You may not be getting one.

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In November of last year, the IRS announced it would delay the ruling for the second year in a row. Why? It is not always easy to distinguish between taxable and non-taxable transactions through third-party apps. For example, the money your roommate sends you to dinner via Venmo is not taxable, but the money received for a graphic design project is. The pause gives the payment platform more time to prepare.

“We spent several months gathering feedback from third-party groups and others, and it became increasingly clear that we needed to effectively implement the new reporting requirements,” IRS Commissioner Danny Werfel said in a statement. Additional time is required.” November 2023 statement.

When will the new tax condition come into force? And what you should expect when. Filing your taxes What if you made money through PayPal or other payment platforms in 2023? Here's everything you need to know, just like us. Dive into tax season..

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What is the 1099-K $600 rule?

Under the new reporting requirements previously announced in the American Rescue Plan, third-party payment apps will eventually be required to report to the IRS revenue of more than $600.

For your 2024 taxes (which you'll file in 2025), the IRS is planning a phased rollout, requiring payment apps to report freelancers and business owners. Earnings over $5,000 Instead of $600. The hope is that raising the limit will reduce the risk of errors while giving agencies and payment apps more time to work up to the $600 minimum.

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Previously, third-party apps only sent 1099-Ks to customers who received $20,000 in trade payments in more than 200 transactions.

If you are Self EmployedYou must already pay taxes on your total income, even if you don't receive a 1099 from all of your earnings. This is not a new rule. It is a tax Reporting The change will shift the IRS reporting requirement to payment apps so it can track transactions that often go unreported.

What this rule means for your 2023 taxes.

The IRS has suspended this reporting requirement for 2023. This means that if you earn freelance income, you will report your income as normal when you file your taxes this year. You won't receive a 1099-K form from third-party apps unless you receive payments of more than $20,000 in more than 200 transactions in 2023.

Instead, you can receive 1099-NECs from any business you do business with. Even if you don't receive a tax form from a client, you're still prepared to report all of your self-employment income.

How this rule will affect your 2024 taxes

For tax year 2024, you will receive Tax Form 1099-K If you earn more than $5,000 from a freelance client or side hustle through third-party payment apps, it affects your tax filing in 2025. Change

What payment apps are covered by this IRS rule?

All third parties Payment apps Freelancers and business owners who earn 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 that freelancers can use, such as Fiverr or Upwork, are also ready to start 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 can prevent nontaxable charges — money sent by family or friends — from being mistakenly included on your 1099-K.

Is IRS tax money sent to family or friends?

No, there are rumors circulating that the IRS is cracking down on money sent to family and friends through third-party payment apps, but that's not true. Personal transactions involving gifts, favors or compensation are not considered taxable. Some examples of non-taxable transactions include:

  • Money is received as a holiday or birthday gift from a family member.
  • Received money from a friend to cover his share of the restaurant bill.
  • Your roommate or partner has been charged for their share of the rent and utilities.

Payments reported on the 1099-K should be marked as payment for goods or services by the vendor. When you select “Send money to family or friends,” it won't show up on your tax form. In other words, save your roommate for half of his restaurant bill.

Will you pay tax on items sold through Facebook Marketplace?

If you sell personal items for less than you paid and collect through third-party payment apps, these changes won't affect you. For example, if you buy a sofa for your home for $500 and later sell it on Facebook Marketplace for $200, you don't have to pay tax on the sale because it's a personal item you own. Sold at a loss. You may need to show the original purchase documents 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 through PayPal. Another digital payment appthen income over $5,000 will be considered taxable and reported to the IRS in 2024.

Be sure to keep good records 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 verify your tax information, such as your employer's identification number, individual tax identification number or social security number. If you're a business owner, you'll 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 Filing your self-employment taxes can take some manual work.

Once this rule goes into effect, you can still receive an individual 1099-NEC form if you were 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'll receive one 1099-K instead of multiple 1099-NECs.

To avoid any reporting confusion, make sure you're tracking your earnings manually or through accounting software like Quickbooks.

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