Rossen Reports: New IRS Guidelines for Venmo and PayPal Users

If you receive payments for freelance work, side hustles, or other income-generating activities through apps like Venmo or PayPal, it’s time to pay attention to some important updates from the IRS that could affect how you report your earnings come tax time.

New IRS Guidelines for Third-Party Payment Platforms

In November 2023, the IRS released new guidelines for income earned through third-party payment platforms (Venmo, PayPal, Cash App, and others). These updates are a result of changes to tax laws intended to improve reporting and ensure tax compliance across various digital payment systems.

Here’s what you need to know:

What’s Changing?

Starting in 2024, if you earn more than $5,000 through these platforms, the provider will issue you a 1099-K form. This form reports income received through the platform, which you will need to include when filing your taxes.

But that’s not the end of it. In 2025, the threshold for receiving a 1099-K form will drop to $2,500, and by 2026, it will decrease even further to $600. This change stems from the American Rescue Plan, which originally set the $600 threshold to take effect in 2022. However, its rollout was delayed.

Why Is This Important?

Before these changes, the IRS only required third-party platforms to send 1099-K forms for transactions exceeding $20,000 and 200 transactions in a year. Now, the threshold is much lower, meaning that many more freelancers and consultants will be receiving these forms, making it easier for the IRS to track income and ensure taxes are being paid.

What Types of Transactions Are Affected?

It’s important to note that these new rules apply only to income-generating transactions. If you’re using Venmo or PayPal for personal purposes, like splitting rent with a roommate or paying for dinner with friends, those payments won’t be subject to these new reporting rules.

However, if you’re receiving payments for freelance work, selling goods or services, or other business-related activities, these payments are considered income and will be reported on the 1099-K form.

What Do You Need to Do?

  • Keep accurate records of all transactions, especially if you’re using payment apps for your side hustle or freelance work.
  • Monitor your total earnings through these platforms to ensure you know when the $5,000, $2,500, or $600 thresholds are met.
  • Prepare to report the income on your tax return. Receiving a 1099-K form means you must include that income on your taxes, even if you don’t receive a physical 1099-K.

Takeaway: Plan for 2024 Taxes

With these new guidelines in place, now is the time to start planning for next year’s taxes. If you’re receiving payments through Venmo, PayPal, or other third-party platforms, be sure you understand how these changes impact you. Staying ahead of the IRS’s new rules can help avoid surprises when you file your tax return.

To learn more about how these updates might affect your tax filings or to get tips on navigating the new rules, be sure to check out the full guide written by Rossen Reports..

Stay informed and be tax-ready for 2024!

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Davis & Hodgdon CPAs works with individuals and business owners to keep more of what they earn. Our accountants have the experience required to make sure that nothing is missed! For more information or to set up an appointment please reach out to us today.

Recipients should not act on the information presented without seeking prior professional advice. Additional guidance may be obtained by contacting Davis & Hodgdon CPAs at 802-878-1963 (Williston) or 802-775-7132 (Rutland).

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