IRS Announces Tough Penalties for Missing Form 1099-K Filing on Cash App and PayPal Payments Exceeding Threshold

We’re sure you’re one of those people who rely on payment apps for everyday transactions, from getting paid for small (freelance) jobs to splitting a restaurant bill with your friends.

Well, now you need to know that when these transactions cross a price threshold, the IRS comes to say “hello.” These are recent changes to tax reporting rules, and it’s more important than ever to stay informed so you don’t get fined! We’re going to explain everything you need to know about this new change, so you’re not caught off guard.

This news comes after the IRS discovered that there are users who have earned more than 5,000 through payment applications such as PayPal, Venmo or Cash App or similar platforms who have done freelance work and have not declared their taxes to the administration, which is why they are now going to require the 1099k tax form.

What is the 1099-K report?

Well, this is a tax document that will detail the data of all the income obtained through third-party payment platforms. This means that, if you have received more than the limit established by the IRS, you will have to file this declaration that indicates what you have received through these types of applications.

Until now, these applications only sent the report if the income exceeded $20,000 (or 200 transactions). However, the rules have changed, and this change has already been proposed for 2024.

2024 the year of change

Well, yes, it has been from this year that has just passed that the platforms have been obliged to report income over 5,000. Remember that this is not a new tax reform, but rather a change in each individual’s tax declaration (since, as you know, all economic income must be declared and paid with its respective taxes…) The IRS is simply changing a requirement in order to also be able to control the income that comes in through these payment applications.

So what transactions will I have to declare?

The IRS is only interested in payments made for goods and services (i.e., those payments that come from a personal economic activity).

If you use these types of applications to pay in restaurants or receive gifts, don’t worry, it’s clear that they won’t consider them to be taxable income. However, it’s important to correctly label these transactions to avoid them being included in the 1099-K report!

Which apps will require this form?

Simple, all those payment apps where freelancers and private business owners receive income (or have received it this 2024). Some apps include PayPal, Venmo, and Cashapp. Other platforms that freelancers also often use are Fiverr or Upwork, which will also be required to report the payments that freelancers receive throughout the year from their apps.

If you are a Zelle user, you are in luck! You will not receive the 1099k report because this transfer service is exempt! Regardless of whether business funds are received through it or not, and this is because Zelle does not have its own funds in its account like PayPal or other companies do. Instead, it is used as a platform to transfer money between bank accounts (i.e., as a kind of “bridge” between bank accounts), so if you are getting paid for freelance services or a small business through it, it is their (the company’s) responsibility to declare all income on Schedule C of the tax return

What advice can we give you?

One piece of advice we can give you is that if you are going to start charging through this type of application, separate your professional activity from your personal activity. This will make it so that not all the charges you receive in your bank accounts are taxable.

Well, after this advice, another of the most important things is that you keep a detailed control of the transactions you make by keeping a monthly record. You will see how it is easier to make your declaration (and it will protect you from possible errors).

Another important point is that you confirm your tax information, both your Social Security number or employer number (as appropriate).

Remember, you should not be afraid to collect from these applications since you will still have to declare those taxes because we already know that the administration and Social Security are built by all of us! So, it is just a small modification so that we all contribute to the Administration as appropriate.