New news says that you need to file your taxes if you made more than $5,000 through third-party apps like Cash App or PayPal. After putting off a new tax rule for independent contractors paid through third-party apps for several months, the IRS will finally go ahead with it.
The IRS now wants PayPal, Venmo, Cash App, and other similar apps to give you tax forms 1099-K that show how much money you made if you made $5,000 or more. This is not a new tax rule; it is just a change to how you report your taxes.
The mandatory 1099-K form you must fill out if you earn money through Cash App and PayPal
If you work for yourself or as a freelancer, you should already be taxing all of your income, even if you do not get a 1099. To put it simply, the Internal Revenue Service (IRS) is changing the rules so that payment apps must report transactions that might not be seen otherwise.
Mark Steber, who is the chief tax information officer at Jackson Hewitt, says that the rules for how taxpayers are taxed and treated have not changed. If you get this kind of income, the IRS has always said that you need to report it on your tax return.
People in the US should know that the IRS will only require third-party apps to report income; the tax agency is not interested in money given to friends or family to split a restaurant bill or pay rent.
Also, if you made $5,000 or more this year through third-party payment apps, you should get a 1099-K to report your income on your 2025 tax return. This is all the information you need about this change in reporting.
What is the purpose of the 1099-K form?
On a 1099-K tax form, you report income from a temporary job, like a side gig, freelancing contract, or contractor position, that you get through a third-party payment platform and for which taxes are not withheld.
At the moment, a third-party payment app like Cash App or Venmo has to send a 1099-K to the IRS and people if it makes more than $20,000 in business payments over more than 200 transactions.
If you regularly make more than $20,000 from freelancing, get paid with Venmo, and get more than 200 transactions in payments, you may have already received a 1099-K tax form.
At first, the American Rescue Plan talked about more rules for reporting. Eventually, these rules will mean that third-party payment apps will have to tell the IRS about earnings over $600. Steber said that you had to make $20,000 and make 200 transactions in order to get a 1099-K tax record before 2024.
The IRS is also thinking about a slow rollout, where payment apps would have to report freelancers’ and business owners’ earnings over $5,000 instead of $600 for your 2024 taxes, which you will file in 2025.
The goal of raising the threshold is to lower the chance of mistakes while giving the agency and people filing payments more time to get ready for the final $600 minimum.
Why was the Cash App and PayPal tax rule delayed?
The IRS wanted to make a new rule that would require third-party payment apps like PayPal, Venmo, or Cash App to report to the tax agency any income of $600 or more per year. At first, the rule was supposed to start taking effect at the start of 2022.
The IRS put off this new reporting requirement in 2022 and 2023. It is hard to tell the difference between taxable and nontaxable transactions through third-party apps because the delayed rollout gave payment platforms more time to get ready. For example, a roommate’s Venmo payment for a graphic design project could be taxable.
All third-party payment apps that help business owners and independent contractors make money will have to start telling the IRS about transactions involving you starting in 2024. Some of the most well-known payment apps are PayPal, Venmo, and Cash App.
Freelancers also need to start reporting the money they make on other sites, like Fiverr or Upwork, at the beginning of the year. For business transactions, it is best to have their own PayPal, Cash App, or Venmo account if you use payment apps to make money.
This can help you make sure that you do not include nontaxable charges on your 1099-K by accident, like money paid by friends or family.