The IRS Starts New Tax Rule for Venmo, PayPal and CashApp. What You Need to Know
Listening, freelancer. You may receive this tax report season 1099-K tax sheet If you earn more than $ 5,000 through third -party payment applications such as PayPal, Venmo or Cash APP.
The IRS (IRS) initially launched a plan, that is, in 2023, a new report requirement for anyone who passed the application income of more than $ 600. After two years of delay, the tax institution decision Implementation in stagesThe threshold for the 2024 tax annual report was increased to $ 5,000.
This report changes means that if you earn more than $ 5,000 in applications such as Venmo last year, the payment platform will send you 1099-K forms to you and IRS. This enables the IRS to understand your unpaid tax income this year to ensure that you pay the right tax.
If you make money Freelance or self -employed occupational incomeYou may not be familiar with 1099 tax tableEssence Even if you do not receive a tax -free income of 1099, you need to report any report Net profit exceeds $ 400 When you go to the National Taxation Bureau (IRS) Submit your tax declaration formEssence The 1099-K tax reform puts forward a report request for the payment application so that the IRS can better monitor the income that may not be reported.
Jackson Hewitt chief tax information officer Mark Steber said: “The tax and taxation requirements for taxpayers have not changed.” “The U.S. IRS has always believed that the income should be taxed and should be reported on the tax declaration form.”
Although the IRS will be able to pay close attention to the income of freelancers, tax institutions are not interested in the money sent by you and friends. For example, if you pay some rent to roommates via Venmo, these transactions are not considered taxable.
Here are all information about the change of the new 1099-K tax report that you need to understand.
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What is 1099-K?
one 1099-k is a tax table The report reports the income obtained from non -permanent work through a third -party payment platform, such as sideline, free occupational agreements or contractor positions without prepaid taxes.
The U.S. Taxation Administration currently requires any any Third -party payment application For example, Cash APP and Venmo, if individuals receive more than $ 20,000 in more than 200 transactions, they can send 1099-K to IRS and individuals. If your free occupational income often exceeds $ 20,000, pay through Venmo and receives more than 200 payment transactions, you may have received a 1099-K tax list before.
What is the declaration threshold for the 1099-k declaration of the year 2024?
For taxes in 2024 (you will submit in 2025), the IRS is planning to be launched in the stage, requiring to pay applications to report to freelancers and business owners and business owners Income exceeds $ 5,000 Essence
“Before 2024, the income threshold for obtaining 1099-K tax documents was $ 20,000 and 200 transactions,” Steber said.
Why is IRS’s 1099-K tax rule postponed?
The US IRS was originally scheduled to start in early 2022. It plans to implement a new report rule. This rule requires third -party payment applications, such as BabeVenmo or Cash APP reports annual income exceeded $ 600 or more To taxation agenciesEssence The IRS (IRS) delayed this new report request in 2022 and was postponed again in 2023.
Why? It is not always easy to distinguish taxable transactions and non -taxable transactions through third -party applications. For example, your roommate does not need to pay taxes for dinner money sent by Venmo, but the money received by graphic design projects may need to be taxed. The launch of the payment platform has more preparation time.
Danny Werfel, Director of the IRS, said in a statement: “We spent a few months collecting feedback from third -party groups and other institutions. More time to effectively implement new report requirements. State in November 2023Essence
Which payment applications are sending 1099-K?
All third parties Payment application Freelancers and business owners who have obtained income must start to report to IRS in 2024 to involve your transactions. Some popular payment applications include PayPal, Venmo and Cash App. Freedom professional may use other platforms, such as FivVer or UpWork, which also have the obligation to start reporting the payment received by Liberty throughout the year.
If you earn income by paying the application, it is best to set a separate PayPal, Cash App or Venmo account for your professional transaction. This can prevent non-taxable fees (from the money from family or friends) to be mistakenly included in your 1099-K.
Zelle users will not receive 1099-k
There is a popular payment application is not restricted by 1099-K rules. Payment transfer service Zelle will not issue 1099-k 1099-kWhether you receive commercial funds through this service. This is because Zelle is not like PayPal, Venmo, or Cash App to save your funds in an account, but is used as a way to transfer between bank accounts. If you get the remuneration of freelancers or small enterprises through Zelle, you have a responsibility to report all income on the attached table C of the tax declaration form.
Will the National Taxation Bureau tax on the money you sent to your family or friends?
No. There are rumors that the US Taxation Agency is fighting the behavior of remittance to family and friends through third -party payment applications, but this is not the case. Personal transactions involving gifts, benefits or reimbursement are not considered taxable. Some examples of tax -free transactions include:
- The money received as a festival or birthday gift from family members
- The money received from a friend is used to pay for their restaurant bill part
- The money received from your roommate or partner’s rent and water and electricity fee share
The payment reported on the 1099-K must be marked as the supplier’s goods or service payment. When you choose “remittance to your family or friends”, this amount will not appear on your tax sheet. In other words, the money of your roommate gives her half of the restaurant bills is safe.
“This is only applicable to self -employed career income,” Stebe said. “You should not receive 1099-K of personal transactions, but please note that some platforms may accidentally include personal transactions in 1099-K, which requires correction on the user tax declaration form.”
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If you sell goods on Facebook Marketplace or Poshmark, will you owe taxes?
If you sell personal items at a price below the purchase price and charge it through a third -party payment application, these changes will not affect you. For example, if you purchase a home sofa for $ 500 and then sell it at a price of $ 200 at the Facebook Marketplace, you do not need to pay the sales tax because this is your personal item at a loss. You may need to show the original purchase documents to prove that you sell the product at a loss.
If you have a sideline, buy products through PayPal or PayPal and resold to obtain profits Another digital payment applicationThen, more than $ 5,000 in income will be considered taxable and reports to IRS in 2024.
Make sure you keep your purchase and online transactions good records to avoid taxes for any non -taxable income -if you have any questions, please contact the tax professionals for help.
What preparation should you make for this report change?
Any application you use may require you to confirm your tax information, such as your employer’s identification number, personal tax identification number or social security number. If you have a company, you are likely to have EIN, but if you are a wholly -owned operator, a personal freelancer or a zero worker, you will provide ITIN or SSN.
In some cases, Receive 1099-K It may reduce some handmade jobs that you apply for self -employed occupation tax.
After this rule takes effect, if you pay directly, check or cash, you may still receive a personal 1099-NEC form. If you have multiple customers through PayPal, Venmo, UpWork or other third -party payment applications to you and If your income exceeds $ 5,000, you will receive a 1099-k instead of multiple 1099-Nec.
To avoid any reports, make sure you can track your income manually or use accounting software such as QuickBooks.
