IRS now requires payment apps to report user income, possibly affecting taxes.
SACRAMENTO, Calif. — New IRS changes for popular payment apps like Venmo and PayPal could affect you this tax season. If you use these apps, you may owe taxes this year.
Here’s what’s next and which kinds of payments are involved.
“The IRS has decided to require third parties that have payment collectors to issue these 1099-K’s when the volume of transactions reaches certain thresholds,” said CPA Flaminius Ching.
Payments apps are now required to send tax information to the IRS, and the new rules are being phased in over the next few years.
According to the IRS, for 2024, businesses and workers are required to report income of $5,000 or more from these apps. In 2025, the threshold will drop to $2,500 and then it will drop to $600 in 2026.
So, if you got income through a payment app in 2024, you could receive a 1099-K tax form and would need to report that when you file your taxes in 2025. Keep in mind, each payment app has its own system for categorizing business transactions versus personal transactions.
“On those platforms you can usually set a flag to indicate whether it’s a business transaction versus a personal,” said Ching. “And if it’s personal — those rules of reporting a 1099 do not apply.”
That means not every third-party payment app transaction will be reported.
“A common one that I’ve been seeing is people who’ve been selling their personal items on eBay,” Ching said.
“When you’re selling personal items, more often than not you’re selling items you’ve owned for a long time that you’ve purchased for a higher value. And so, in that circumstance, you’re selling something basically at a loss. And the fact that it’s a personal item, it becomes not reportable,” said Ching.
Other examples of personal transactions include friends using a payment app to split the cost of a pizza, roommates using an app to split the cost of rent for the month or family members paying each other back for a holiday gift they purchased together.
“The 1099-K is going to the receiver,” Ching said. “You just want to make sure that people sending you those funds are checking it appropriately also.”
Experts warn there is a good chance mistakes will be made in the first few years, so payment app users should check their records just to be safe.
If the payments are truly income from a one-time job or side hustle, then the recipient must report the income to the IRS.
Experts say if you ignore your 1099-K forms, you’ll likely get a letter from the IRS asking for more information. If the letter is ignored, the IRS might add the amount listed on the form to the recipient’s total income for the year, which would likely increase the amount of taxes you owe.
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