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Listen up, Freelancers. This tax season, you may receive a 1099-k tax form If you make more than $5,000 through a third-party payment store such as PayPal, Venmo or a cash app.
The IRS initially set in motion a plan to implement mandatory new reporting requirements for anyone who earns more than $600 in payroll taxes by 2023. After a two-year delay, the tax agency has decided that implementing a phased rolloutraising the reporting threshold to $5,000 for the 2024 tax year.
This reporting change means if you earned more than $5,000 on an app like Venmo last year, the payment platform will send you iRs a 1099-K form. This gives the IRS a clearer picture of what you earned on your unearned income this year, to make sure you’re paying the right amount of tax.
If you get Freelance or Self-Employment Incomeyou are probably not a stranger 1099 tax forms. Even if you didn’t receive a 1099 for the unearned income you earned, you still need to report it to someone Net earnings of $400 to the IRS if you File your tax return. The 1099-K tax reform puts in place a requirement to report payroll deductions so the IRS can keep better tabs on earnings that may otherwise go unreported.
“The tax requirements and tax requirements for taxpayers have not changed,” said Mark Steber, Chief Tax Information Officer for Jackson Hewitt. “This income is always considered by the IRS to be taxable and must be reported on the tax return.”
While the IRS is able to keep a closer Freelance income, the tax agency is not interested in the money you send to your family and friends. If you pay your roommate your share of the rent through Venmo, for example, these transactions are not considered taxable.
Here’s everything you need to know about the new 1099-Kx tax change.
Read more: The updated IRS Federal Tax Brackets could boost your paycheck next year. Here’s why
What is a 1099-K?
art 1099-K is a tax form that reporting income through a third-party payment platform from a non-permanent job, such as a side hustle, freelance position or contractor position where tax is not withheld.
The IRS now requires anything Party-Party Apps Like the cash app and Venmo that will send a 1099-K to the IRS and individuals if they earn more than $20,000 in commercial payments in more than 200 transactions. If you regularly make $20,000 in Freelance income, get paid through Venmo, and receive more than 200 payment transactions, you may have received a 1099-k tax form in the past.
What is the reporting threshold for 1099-K for Tax Year 2024?
For your 2024 taxes (which you will file in 2025), the IRS plans a phasesteut roll forance and business owner earnings of $ 5,000 .
“Before 2024, the income threshold is $20,000 and 200 transactions to receive a tax document 1099-K,” said Steber.
Why is the IRS 1099-K Tax Return Taking So Long?
Originally set to go into effect in early 2022, the IRS plans to implement a new reporting rule that will require third-party payment apps, such as BaypalVenmo or cash app to report income over $600 or more per year of the tax agency. The IRS has delayed this new reporting requirement in 2022 and again in 2023.
Why? Distinguishing between taxable and nontaxable transactions through third-party apps is not always easy. For example, money your venmo partner sends you for dinner isn’t taxable, but money received for a graphic designer project might be. The delayed rollout gives payment platforms more time to prepare.
“We have been gathering for months from third party groups and others, and it is very clear that we need more time to effectively implement the new reporting time in a November 2023 Statement.
Which payment apps send 1099-KS?
All third parties Paid Apps When freelancers and business owners receive income, they must begin reporting transactions involving you to the IRS in 2024. Some popular payment apps include Paypal, Venmo and cash apps. Other platforms that can be used, such as Fivver or Upwork, are also on the hook to start reporting payments received by freelancers throughout the year.
If you earn through payment apps, it’s a good idea to set up a separate PayPal, cash app or Venmo account for your professional transactions. This will prevent bad cases – money sent from family or friends – from being included on your 1099-K in error.
Zelle users will not receive a 1099-K
There is a popular payment that is exempt from the 1099-K rule. Payment transfer service Zelle will not issue a 1099-KSwhether you receive business funds through the service or not. That’s because Zelle doesn’t hold your funds in an account, like PayPal, Venmo or cash apps do, and is instead used as a way to transfer money between bank accounts between bank accounts. bank between bank accounts between bank accounts between bank accounts between bank accounts between bank accounts between bank accounts. If you’ve been paid for your freelance or small business services through Zelle, it’s your responsibility to report all of that income when you schedule your taxes.
Is the IRS money you send to family or friends?
No. Rumors are swirling 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 restitution are not considered taxable. Some examples of bad transactions include:
- Money received from a family member as a holiday or birthday gift
- Money received from a friend that covers their share of a restaurant bill
- Money received from your roommate or partner for their share of the rent and utilities
The payment to be reported on a 1099-K should be flagged as payment for goods or services from the vendor. If you select “Send money to family or friends,” it won’t appear on your tax form. In other words, that money from your roommate for his half of the restaurant bill is safe.
“It’s just for self-employment income,” Steber said. “You should not receive a 1099-K for personal transactions but be aware that some platforms will inadvertently include personal transactions on the 1099-K and that should be corrected on the return taxes.”
Read more: Election 2024: where every presidential candidate stands on the child tax credit
Do you owe money when you sell things on Facebook Marketlace or POHRMAR?
If you sell personal items for less than you paid for them and collect money through third-party apps, these changes won’t affect you. For example, if you buy a bed for your home for $500 and later sell it on Facebook Marketplaclate for $200, you will not be taxed on a loss. You may be required to show documentation of the original purchase to prove that you sold the item at a loss.
If you have a side hustle where you buy things and sell them for a profit through PayPal or Another Digital Payment Appthen the income over $5,000 is considered taxable and reported to the IRS in 2024.
Be sure to keep a good record of your online purchases and transactions to avoid paying taxes on any nontaxable income – and when in doubt, contact a tax professional.
What do you need to do to prepare for the reporting change?
Any paid apps you use may ask you to confirm your tax information, such as your employer’s identification number, social security number. If you own a business, you will likely have an ein, but if you are a sole proprietor, individual Freelancer or Gig Worker, you will provide an ITIN or SSN.
In some cases, received a 1099-K Hopefully it will take some of the manual work out of filing your own personal taxes.
If this rule goes into effect, you may still receive individual 1099-NEC forms if you are paid by direct deposit, check or cash. If you have many clients who pay you through Paypal, Venmo, Upwork or other Party-Party Payment Apps and If you earn more than $5,000, you will receive one 1099-K instead of multiple 1099-NECs.
To avoid any reporting chaos, make sure you track your earnings manually or in accounting software like QuickBooks.
