If you have not filed your taxes but this yr, you may have till midnight on April 15 to submit your tax return. In case you obtained any freelance revenue this yr by means of PayPal, Venmo, Money App or Zelle, you could be confused about what the 1099-Ok modifications imply on your present tax return.
Initially set to kick off at first of 2022, the IRS deliberate to implement a brand new reporting rule that might require third-party cost apps, like PayPal, Venmo, Money App or Zelle, to report revenue of over $600 or extra per yr to the tax company. However the IRS has delayed this new reporting requirement for this tax season. So in the event you have been ready on a 1099-Ok to file your tax return — you will not be getting one.
In November final yr, the IRS introduced it might delay the rule for the second yr in a row. Why? Distinguishing between taxable and nontaxable transactions by means of third-party apps is not all the time straightforward. For instance, cash your roommate sends you thru Venmo for dinner isn’t taxable, however cash obtained for a graphic design mission is. The pause offers cost platforms extra time to arrange.
“We spent many months gathering suggestions from third-party teams and others, and it turned more and more clear we want extra time to successfully implement the brand new reporting necessities,” stated IRS Commissioner Danny Werfel in a November 2023 assertion.
When will the brand new tax requirement roll out? And what do you have to anticipate when submitting your taxes in the event you earned cash by means of PayPal or one other cost platform in 2023? Here is every part you’ll want to know as we dive into tax season.
What’s the 1099-Ok $600 rule?
Underneath new reporting necessities first introduced within the American Rescue Plan, third-party cost apps will finally be required to report earnings over $600 to the IRS.
To your 2024 taxes (which you may file in 2025), the IRS is planning a phased rollout, requiring cost apps to report freelancer and enterprise proprietor earnings over $5,000 as an alternative of $600. The hope is that elevating the edge will scale back the danger of inaccuracies whereas additionally giving the company and cost apps extra time to work towards the eventual $600 minimal.
Beforehand, third-party apps solely despatched 1099-Ks to customers who obtained $20,000 in business funds throughout greater than 200 transactions.
In case you’re self-employed, you must already be paying taxes in your complete revenue, even in the event you do not obtain a 1099 from your whole earnings. This is not a brand new rule; it is a tax reporting change. The IRS might be switching the reporting requirement to cost apps so it may well maintain tabs on transactions that usually go unreported.
What this rule means on your 2023 taxes
The IRS paused this reporting requirement for 2023. This implies in the event you earn freelance revenue, you may report your earnings like typical while you file your taxes this yr. You simply will not obtain a 1099-Ok kind from third-party apps until you obtain over $20,000 in funds throughout over 200 transactions in 2023.
As a substitute, you could obtain 1099-NECs from any companies you’re employed with. Even in the event you do not obtain a tax kind from a consumer, you are still on the hook for reporting your whole self-employment revenue.
How this rule will influence your 2024 taxes
For tax yr 2024, you may obtain tax kind 1099-Ok in the event you earn greater than $5,000 from a contract consumer or aspect hustle by means of third-party cost apps, affecting the taxes you may file in 2025. The IRS could resolve to once more delay this rule or alter the edge, so it is doable this requirement may change.
Which cost apps are included on this IRS rule?
All third-party cost apps the place freelancers and enterprise house owners obtain revenue are required to start reporting transactions involving you to the IRS in 2024. Some widespread cost apps embrace PayPal, Venmo, Zelle and Money App. Different platforms freelancers could use, akin to Fivver or Upwork, are additionally on the hook to start reporting funds that freelancers obtain all year long.
In case you earn revenue by means of cost apps, it is a good suggestion to arrange separate PayPal, Zelle, Money App or Venmo accounts on your skilled transactions. This might forestall nontaxable fees — cash despatched from household or pals — from being included in your 1099-Ok in error.
Is the IRS taxing cash despatched to household or pals?
No. Rumors have circulated that the IRS was cracking down on cash despatched to household and pals by means of third-party cost apps, however that is not true. Private transactions involving presents, favors or reimbursements aren’t thought of taxable. Some examples of nontaxable transactions embrace:
- Cash obtained from a member of the family as a vacation or birthday reward
- Cash obtained from a pal protecting their portion of a restaurant invoice
- Cash obtained out of your roommate or companion for his or her share of the hire and utilities
Funds that might be reported on a 1099-Ok should be flagged as funds for items or providers from the seller. When you choose “sending cash to household or pals,” it will not seem in your tax kind. In different phrases, that cash out of your roommate for her half of the restaurant invoice is protected.
Will you owe taxes on objects offered by means of Fb market?
In case you promote private objects for lower than you paid for them and gather the cash through third-party cost apps, these modifications will not have an effect on you. For instance, in the event you purchase a sofa on your house for $500 and later promote it on Fb Market for $200, you will not owe taxes on the sale as a result of it is a private merchandise you’ve got offered at a loss. You might be required to point out documentation of the unique buy to show that you just offered the merchandise at a loss.
When you have a aspect hustle the place you purchase objects and resell them for a revenue through PayPal or one other digital cost app, then earnings over $5,000 might be thought of taxable and reported to the IRS in 2024.
Ensure to maintain report of your purchases and on-line transactions to keep away from paying taxes on any nontaxable revenue — and when unsure, contact a tax skilled for assist.
Find out how to put together for this reporting change
Any cost apps you utilize could ask you to substantiate your tax data, akin to your employer identification quantity, particular person tax identification quantity or Social Safety quantity. In case you personal a enterprise, you almost certainly have an EIN, however in the event you’re a sole proprietor, particular person freelancer or gig employee, you may present an ITIN or SSN.
In some instances, receiving a 1099-Ok could take a number of the guide work out of submitting your self-employment taxes.
As soon as this rule takes impact, you should still obtain particular person 1099-NEC kinds in the event you have been paid by means of direct deposit, verify or money. When you have a number of shoppers who pay you thru PayPal, Venmo, Upwork or different third-party cost apps and you earn greater than $5,000, you may obtain one 1099-Ok as an alternative of a number of 1099-NECs.
To keep away from any reporting confusion, be sure you’re monitoring your earnings manually or with accounting software program akin to Quickbooks.
