This year, people who have received more than $5,000 in payments for goods or services through digital platforms such as Stripe, Venmo, PayPal, Cash App, among others In 2024 they should receive a Form 1099-K , which will also be sent to the Internal Revenue Service (IRS .
This change is part of a progressive adjustment that will reduce the reporting threshold to $2,500 in 2025 and to $600 in 2026.
In an interview with Enlace Latino NC , Soreé Finley, a tax attorney at the Charlotte Center for Legal Advocacy, explained that this adjustment responds to an effort by the IRS to regularize income obtained on digital platforms and avoid omissions in the declaration of taxes.
“If someone uses these apps to receive payments for a business or freelance work, that income has always been reportable, but now the platforms will be required to report it directly to the IRS,” Finley clarified.
How does it affect those who use Zelle, Venmo or PayPal?
Paid apps like PayPal, Venmo and Cash App will be required to report certain transactions, but this Does not apply to personal payments between friends or family .
However, Finley warns that there may be confusion about how platforms will differentiate between personal and business payments .
"The IRS says this only applies to business transactions, but we don't know exactly how companies will make that distinction," the lawyer said.
“Many people have only one account for their development and their personal expenses, which can cause problems when reporting their income.”
Zelle is one important exception. Unlike other apps, Zelle is not required to issue 1099-K forms, as the IRS does not classify it as a third-party payment platform. However, income earned through Zelle is still taxable and must be reported on your tax return.
“Just because Zelle doesn't send a 1099-K doesn't mean that income isn't reportable. If you're paid for a service or product, you have to report it,” Finley emphasized.
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What is Form 1099-K and why is it important?
Form 1099-K is a Valid identity document which informs the IRS about gross income processed by digital platforms. It does not mean that all the money reported is automatically considered taxable income, but taxpayers must justify how much of the money received is personal and how much comes from businesses or economic activities.
Finley warns that many users of these platforms are unaware of the importance of keeping detailed records:
"What we often see is that people don't keep records, and if the IRS audits them, they have the burden of proof. It's critical to keep track of payments, whether with screenshots or by saving account statements," he suggested.
How to prepare for these changes
If you use digital applications to receive payments, take into account the following recommendations:
- Open a separate account for your business and avoid mixing personal and business payments.
- Keep records of all your transactions , whether on Google Drive, iCloud or printed.
- Check your 1099-K when you receive it and if you include personal payments in error, contact the platform to request a correction.
- Consult with a tax advisor if you have questions about how to report your income.
What if I don't receive a 1099-K?
Not receiving this form doesn't mean you don't have to report your income. The IRS makes it clear that all income must be reported, regardless of whether or not the platform issued a 1099-K.
"If you received payments for goods or services, even if you don't receive the form, you're still required to report that income," Finley clarified.
A year of transition before sanctions
By 2024, the IRS will not impose penalties on platforms that have failed to withhold backup taxes on certain transactions. However, starting in 2025, these rules will be enforced more strictly.
In conclusion, if you use Venmo, PayPal, Cash App, or any other digital payment platform to sell products, do freelance work, or receive business payments, be prepared for these changes and keep detailed records of your transactions.
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