IRS delays Form 1099-K: What PayPal, Venmo and Cash app users should know for tax season| Trending Viral hub

The implementation of the IRS 1099-K reporting change has had a rocky launch, leaving self-employed workers with many questions.

Originally scheduled to begin in early 2022, the IRS planned to implement a new reporting rule that would require third-party payment apps, such as PayPalVenmo, Cash App or cellto report income greater than $600 or more per year to the tax agency.

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In November of last year, the IRS announced it would delay the rule for the second year in a row. Because? Distinguishing between taxable and non-taxable transactions through third-party applications is not always easy. For example, money your roommate sends you via Venmo for dinner is not taxable, but money received for a graphic design project is. The pause gives payment platforms more time to prepare.

“We spent many months gathering feedback from third-party groups and others, and it became increasingly clear that we needed additional time to effectively implement the new reporting requirements,” IRS Commissioner Danny Werfel said in a statement. November 2023 Statement.

When will the new tax requirement be implemented? And what should you expect when filing your taxes if you earned money through PayPal or another payment platform in 2023? Here’s everything you need to know as we head into tax season.

What is the IRS $600 payment rule?

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.

For your 2024 taxes (which you’ll file in 2025), the IRS is planning a phased rollout, requiring payment apps to report self-employed people and business owners. earnings over $5,000 instead of $600. The hope is that raising the threshold will reduce the risk of inaccuracies while giving the agency and payment apps more time to work toward the eventual $600 minimum.

Previously, third-party apps only sent 1099-Ks to users who received $20,000 in merchant payments in more than 200 transactions.

If you’re self employed, you should already be paying taxes on your total income, even if you don’t receive a 1099 for all your earnings. This is not a new rule; it’s a tax inform change. The IRS will change the reporting requirement to payment applications in order to monitor transactions that often go unreported.

What the IRS 1099-K change means for your 2023 tax return

The IRS has suspended this reporting requirement for 2023. This means that if you earn income as a self-employed person, you will report your earnings as usual when you file your taxes this year. You simply won’t receive a Form 1099-K from third-party applications unless you receive more than $20,000 in payments on more than 200 transactions in 2023.

Instead, you can receive 1099-NEC from any company you work with. Even if you don’t receive a tax form from a client, you are still required to report all of your self-employment income.

What IRS Rule 1099-K Means for Your 2024 Tax Return

For fiscal year 2024, you will receive 1099-K tax form if you earn more than $5,000 from a freelance client or work through third-party payment apps, which affects the taxes you will file in 2025. The IRS may decide to delay this rule again or alter the threshold, so you may This requirement may change.

What payment applications are included in this IRS rule?

All third party payment apps where freelancers and business owners receive income must begin reporting transactions involving them to the IRS in 2024. Some popular payment apps include PayPal, Venmo, Zelle, and Cash App. Other platforms that freelancers can use, such as Fivver or Upwork, are also interested in starting to report the payments that freelancers receive throughout the year.

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. This could prevent non-taxable charges (money sent from family or friends) from being mistakenly included in your 1099-K.

Will the IRS tax money sent to family or friends?

Rumors have circulated that the IRS was cracking down on money sent to family and friends through third-party payment apps, but that’s not true. Personal transactions involving gifts, favors, or reimbursements are not considered taxable. Some examples of non-taxable transactions include:

  • Money received from a family member as a holiday or birthday gift.
  • Money received from a friend to cover his or her share of a restaurant bill.
  • Money received from your roommate or partner for your share of rent and utilities

Payments to be reported on a 1099-K should be marked as payments for goods or services from the supplier. When you select “send money to family or friends,” it will not appear on your tax form. In other words, that money from your roommate for half the restaurant bill is safe.

Will you owe taxes on items sold through Facebook Marketplace?

If you sell personal items for less than you paid for them and collect the money through third-party payment apps, these changes won’t affect you. For example, if you buy a couch for your home for $500 and then sell it on Facebook Marketplace for $200, you won’t owe sales tax because it’s a personal item that you sold at a loss. You may need to show documentation of the original purchase to prove that you sold the item at a loss.

If you have a side business where you purchase items and resell them for profit through PayPal or another digital payment applicationEarnings over $5,000 will be considered taxable and reported to the IRS in 2024.

Be sure to keep good records of your online purchases and transactions to avoid paying taxes on any non-taxable income, and if in doubt, contact a tax professional for help.

How to prepare for this reporting change

Any payment application you use may ask you to confirm your tax information, such as your employer identification number, individual tax identification number, or Social Security number. If you are a business owner, you most likely have an EIN, but if you are a sole proprietor, freelancer, or freelancer, you will need to provide an ITIN or SSN.

In some cases, receiving a 1099-K You can eliminate some of the manual work when filing your self-employment taxes.

Once this rule goes into effect, you will still be able to receive individual 1099-NEC forms if you were paid by direct deposit, check, or cash. If you have multiple clients paying you through PayPal, Venmo, Upwork, or other third-party payment apps and If you earn more than $5,000, you will receive one 1099-K instead of multiple 1099-NECs.

To avoid reporting confusion, be sure to track your earnings manually or with accounting software like Quickbooks.

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