Kemberley Washington, CPA, Bankrate.com
If you sell a product or service, or property for rent and receive payments through the Venmo, PayPal, Cash app, or another payment app, you may have been surprised by Form 1099-K this year.
Here’s why we’re among the millions of taxpayers who have first got this form: If you receive a total of more than $5,000 in 2024 through the payments app, the company will need to report that amount to you.
The pre-2024 standard was that 1099-K should be issued only if you received more than $20,000 and had more than 200 transactions. This means the threshold amount is much lower and there is no minimum transaction requirement.
And that threshold is expected to drop even further, and there is a high chance that more people will receive 1099 ks next year. The $5,000 reporting threshold for taxes in 2024 was $2,500 in 2025, then plummeted to $600 for over 2026.
The new reporting rules may be a shock to some freelancers and those with side hustles, but technically the tax rules remained the same. You were always supposed to report your income to the IRS.
What is 1099-K?
1099-K Form reports payments for products and services received from credit cards, mobile payment apps, online marketplaces, auction sites, ride apps, crowdfunding sites, and more. Form 1099-K must be sent to taxpayers by January 31st of the following year. In other words, you should have received 1099-K in 2024 by the end of January 2025 (see tax deadline for 2025).
When selling goods or services or renting real estate, the money you earn is generally taxable income (don’t forget, you can cut it with expenses including qualifying business deductions). Selling your own clothes and furniture can still count as taxable income, the IRS says if you make a profit.
However, if you are using Venmo or another payment app to pay back a friend for dinner or send a birthday present to your sister, you should not report this money on 1099-K. If you receive a 1099-K, you must ensure that your form only includes taxable income. (See below for instructions on how to deal with the incorrect 1099-ks.)
The revenue threshold for Form 1099-K has been reduced to $600 as part of the 2021 American Rescue Plan Act (ARPA). Before the ARPA passed, only total payments were over $20,000, and for transactions over 200, form 1099-K was required.
During the debate over the ARPA, the Tax Supervisors and others expressed their opposition to lower payment thresholds. This comes amid a warning meeting from the American Association of Certified Public Accountants that lower thresholds lead to confusion and error. Ultimately, the IRS postponed new reporting requirements for 2022 and 2023, allowing more time for payment apps, officially known as third-party settlement organizations.
New 1099-K Report Requirements
In 2024, the IRS announced a phased approach to reporting thresholds to give third-party settlement organizations time to comply with the reporting requirements of 1099-K.
Before 2023: Over $20,000 and Over 200 transactions
2024: Over $5,000
2025: $5,000+
2025: $2,500+
2026: $600+
Not all payment apps are similar
Taxpayers can expect form 1099-ks for PayPal, Venmo, or Cash apps, but Zelle is not included in that list.
“The Zelle platform transfers funds directly from one bank account to another, just like wire transfers. So, Monica Houston, a certified public accountant in Brentwood, California, said:
Therefore, Zelle transactions are not subject to reporting requirements.
Who could receive the 1099-K?
Form 1099-K is issued to taxpayers who receive direct payments to sell products or provide services. The reporting revenue threshold is $5,000 in 2024, but in some cases you may still receive Form 1099-K even if your dollar amount is below the reported threshold.
Whether or not you receive Form 1099-K, if you receive taxable income from a sale of a product or service, you must report it on your tax return.
What happens if I get the wrong 1099-K?
If you use the payment app to exchange money with friends and family, the exchange is not taxable and you must not receive Form 1099-K for those transactions.
If you receive a reported 1099-K for transactions of these types, you should not report them as taxable income. Instead, contact the publisher of Form 1099-K, request that these items be removed from the form and republish the revised Form 1099-K. The IRS has instructions on how to handle this situation.
When using payment apps for personal and business use, it makes sense to have a robust accounting system to clearly distinguish between business and personal payments.
“We recommend that you consider using Excel spreadsheets or using QuickBooks online to adopt a computerized accounting system,” says Houston. By taking these measures, you can report your income correctly on your income tax return.
How to Report Reported Income on Form 1099-K
Form 1099-K reports different types of payments. This affects the way you report your income on Form 1040 and related forms and schedules. If you sell personal items, you will need to report them on your tax return. If an item is sold for loss, you cannot deduct losses from taxes, but you can reduce the reported income to zero. However, if you sell an item for profit, you will need to report your profit. This is a low taxable income.
Whether you receive payments for products sold, services offered, or rental properties, these must be reported on your tax return. Freelancers, gig workers and self-employed people generally report their income on Schedule C of their income tax returns. Rent payments will be reported on Schedule E.
Houston emphasizes the importance of staying behind with changes to new tax laws and encourages taxpayers to take an active role in the tax process. “We strongly recommend seeking help from a qualified tax professional, especially if you’re receiving Form 1099-K, in the final preparation of their return. Return on investment is usually valuable in many ways,” says Houston.
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Original issue: February 26, 2025, 3:51pm EST
