In some cases, receiving a 1099-K may take some of the manual work out of filing your self-employment taxes. If you own a business, you most likely have an EIN, but if you're a sole proprietor, individual freelancer or gig worker, you'll provide an ITIN or SSN. How to prepare for this reporting changeĪny payment apps you use may ask you to confirm your tax information, such as your employer identification number, individual tax identification number or Social Security number. Make sure to keep a good record of your purchases and online transactions to avoid paying taxes on any nontaxable income - and when in doubt, contact a tax professional for help. If you have a side hustle where you buy items and resell them for a profit via PayPal or another digital payment app, then earnings over $5,000 will be considered taxable and reported to the IRS in 2024. You may be required to show documentation of the original purchase to prove that you sold the item at a loss. For example, if you buy a couch for your home for $500 and later sell it on Facebook Marketplace for $200, you won't owe taxes on the sale because it's a personal item you've sold at a loss. If you sell personal items for less than you paid for them and collect the money via third-party payment apps, these changes won't affect you. Will you owe taxes on items sold through Facebook marketplace? In other words, that money from your roommate for her half of the restaurant bill is safe. When you select "sending money to family or friends," it won't appear on your tax form. Payments that will be reported on a 1099-K must be flagged as payments for goods or services from the vendor. 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.Some examples of nontaxable transactions include: Personal transactions involving gifts, favors or reimbursements are not considered taxable. Rumors have circulated that the IRS was cracking down on money sent to family and friends through third-party payment apps, but that isn't true. Will the IRS tax money sent to family or friends? This could prevent nontaxable charges - money sent from family or friends - from being included on your 1099-K in error. If you earn income through payment apps, it's a good idea to set up separate PayPal, Zelle, Cash App or Venmo accounts for your professional transactions. Other platforms freelancers may use, such as Fivver or Upwork, are also on the hook to begin reporting payments that freelancers receive throughout the year. Some popular payment apps include PayPal, Venmo, Zelle and Cash App. What payment apps are included in this IRS rule?Īll third-party payment apps where freelancers and business owners receive income are required to begin reporting transactions involving you to the IRS in 2024. The IRS may decide to again delay this rule or alter the threshold, so it's possible this requirement could change. What the IRS $600 rule means for your 2024 taxesįor tax year 2024, you'll receive tax form 1099-K if you earn more than $5,000 from a freelance client or side hustle through third-party payment apps, affecting the taxes you'll file in 2025. Even if you don't receive a tax form from a client, you're still on the hook for reporting all of your self-employment income. Instead, you may receive 1099-NECs from any businesses you work with. You just won't receive a 1099-K form from third-party apps unless you receive over $20,000 in payments across over 200 transactions in 2023. This means if you earn freelance income, you'll report your earnings like usual when you file your taxes this year. The IRS paused this reporting requirement for 2023. What the IRS $600 rule means for your 2023 taxes The IRS will be switching the reporting requirement to payment apps so it can keep tabs on transactions that often go unreported. This isn't a new rule it's a tax reporting change. If you're self-employed, you should already be paying taxes on your total income, even if you don't receive a 1099 from all of your earnings. Previously, third-party apps only sent 1099-Ks to users who received $20,000 in commercial payments across more than 200 transactions. The hope is that raising the threshold will reduce the risk of inaccuracies while also giving the agency and payment apps more time to work toward the eventual $600 minimum. Under new reporting requirements first announced in the American Rescue Plan, third-party payment apps will eventually be required to report earnings over $600 to the IRS.įor your 2024 taxes (which you'll file in 2025), the IRS is planning a phased rollout, requiring payment apps to report freelancer and business owner earnings over $5,000 instead of $600.
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