Our Tax Software Picks have significant implications for taxpayers. With the IRS implementing new rules for freelancers and third-party payment apps, it's crucial to stay informed. This article dives deep into the details to help you navigate these changes.

Stay Ahead of the Tax Curve with Our Insights on Third-Party Payment Apps

What is a 1099-K?

A 1099-K is a vital tax form that documents income received via third-party payment platforms from non-permanent jobs. It's essential for freelancers and those with side hustles. For instance, if you earn through Cash App or similar platforms and meet certain criteria, you'll receive a 1099-K. The IRS currently requires apps like Cash App and Venmo to send this form if you earn more than ,000 in commercial payments across over 200 transactions. This helps the IRS keep track of unreported earnings.

What is the IRS’s new 1099-K rule?

Under the new reporting requirements, third-party payment apps will eventually be mandated to report earnings over 0 to the IRS. Prior to 2024, the threshold was ,000 and 200 transactions. For 2024 taxes (filed in 2025), the IRS is phasing in a change, requiring payment apps to report freelancer and business owner earnings over ,000 instead. This aims to reduce inaccuracies and give both the agency and payment apps more time to adjust.

Why was the third-party payment app tax rule delayed?

Originally set to start in 2022, the IRS delayed the new reporting requirement due to the complexity of distinguishing taxable and nontaxable transactions through these apps. For example, money sent between roommates for dinner is nontaxable, but money for a graphic design project is taxable. The delayed rollout allowed payment platforms more time to prepare. As IRS Commissioner Danny Werfel stated in a November 2023 statement, "We spent many months gathering feedback and it became clear we need additional time to implement effectively."

Which payment apps are required to send 1099-Ks?

All third-party payment apps where freelancers and business owners receive income must begin reporting transactions to the IRS in 2024. Popular apps like PayPal, Venmo, and Cash App are included. Even platforms like Fivver or Upwork are on the hook. It's a good idea to have separate accounts for professional transactions to avoid errors. Zelle users, however, are exempt as it doesn't hold funds in an account like other apps.

Is the IRS taxing money you send to family or friends?

No, personal transactions like gifts, favors, or reimbursements are not taxable. Examples include money received from a family member as a gift or from a friend for a restaurant bill. Payments flagged as for goods or services from a vendor will be reported on a 1099-K. If you select "sending money to family or friends," it won't appear on your tax form.

Will you owe taxes if you sell items on Facebook Marketplace or Poshmark?

If you sell personal items at a loss via third-party payment apps, it won't affect you. But if you buy and resell items for a profit through PayPal or another digital payment app and earn over ,000, it will be taxable and reported to the IRS in 2024. Keep good records and consult a tax professional if in doubt.

What should you do to prepare for this reporting change?

Payment apps may ask you to confirm your tax information. If you own a business, you likely have an EIN. For sole proprietors or freelancers, provide an ITIN or SSN. Receiving a 1099-K can simplify filing self-employment taxes. After the rule takes effect, you may still get 1099-NEC forms for other payments. Use accounting software like Quickbooks to track earnings and avoid reporting confusion.