Taxes 2024: Venmo & Cash App Won’t Be Sending 1099’s — Here’s How To Report Your Income to the IRS Without Them
Although originally planned, the IRS announced that it’s delaying a new tax reporting law for third-party payment services like Zelle, Cash App, PayPal and Venmo to report earnings over $600 to the IRS. When implemented, this new rule will only apply to income received through these apps, not money sent between family and friends.
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Why Is The IRS Delaying This Tax Reporting Change?
Previously delayed for the 2023 tax season as well, this rule change has been delayed because the IRS needs more time to effectively implement this new tax reporting change across third-party apps before it’s rolled out universally.
“We spent many months gathering feedback from third-party groups and others, and it became increasingly clear we need additional time to effectively implement the new reporting requirements,” said IRS Commissioner Danny Werfel in November. “An additional delay for tax year 2023 will avoid problems for taxpayers, tax professionals, and others in this area.”
If you’ve earned more than $600 from a side hustle or a client that paid you via a third-party app, you most likely will not receive a 1099-K to include in your 2023 tax returns. If a business entity paid you, you should receive a 1099-NEC instead.
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How The New IRS Tax Rule Will Affect Self-Employed Individuals
While this new rule will be delayed until at least 2024, CNET explained that it’s important to understand how this new tax rule will affect you once the rules are implemented.
Tax reporting change: If you’re self-employed, you still need to pay taxes on your total annual income. This standard rule applies no matter how you received payment or if you were issued a tax form. So, this new rule represents a tax reporting change, not a tax change. The idea is that the IRS can keep a closer eye on payments and transactions for income and goods and services that are currently going unreported.
Currently, you will only receive a 1099-K from third-party apps if you were paid a collective $20,000 across 200 transactions on one third-party app in 2023. After this change takes effect, third-party payment companies will be required to issue you a 1099-K tax form each year if you earn just $600 or more annually. Creating separate payment accounts for both personal and business transactions is a smart way to avoid tax confusion later on.
Items sold at a loss won’t be taxed: Sales on Facebook Marketplace, for example, won’t be taxed if you’re selling an item for a loss. For example, if you purchase a computer for $1,000 and then go on Facebook Marketplace later to sell it for $500, you won’t owe taxes on that $500 sale because you sold the item at a loss. It’s worth noting that if you are buying and reselling items on Facebook Marketplace to earn a profit, the same $600 threshold rule will apply. It’s a smart idea to keep your receipts to avoid paying any unnecessary taxes on non-taxable income.
Not all transactions will be taxed: Although rumors are saying otherwise, the reality is that the IRS isn’t going to tax your personal transactions between family and friends. The types of transactions listed below will not taxed:
Money received from your roommate or partner for their share of the rent and utilities.
Money received from a friend covering their portion of a restaurant bill.
Money received from a family member as a holiday or birthday gift.
So, payments will only be reported on a 1099-K if they’re flagged as payments for goods and services from the vendor.
Receiving 1099-K Forms can simplify tax returns for freelancers: Currently, you receive a 1099-NEC form from each client or entity that pays you $600 or more each year if you’re self-employed. 1099-NEC forms may still apply after this new rule is implemented if you receive payment in the form of cash, check, or direct deposit. But, if you have one client that pays you on Venmo and six others that pay you on Zelle, you’d only receive two 1099-K forms: one from Venmo for the one client and one from Zelle containing the income paid to you across the six other clients, all on one tax form. This should simplify tax filing for self-employed individuals once this new rule takes effect.
Third-party payment apps may request your tax information: Don’t be surprised if Cash App, Zelle, PayPal or Venmo reach out to you to confirm your tax information to continue using their platforms. This might include your Social Security number, ITIN number, or your EIN number (if you own a business).
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This article originally appeared on GOBankingRates.com: Taxes 2024: Venmo & Cash App Won’t Be Sending 1099’s — Here’s How To Report Your Income to the IRS Without Them
