Did you’re employed a aspect hustle or freelance gig this yr and receives a commission via PayPal, Venmo, Money App or one other third-party fee app? In that case, you could have new guidelines to comply with when submitting your tax return subsequent yr.
You may obtain tax type 1099-Ok in case you earned greater than $5,000 in untaxed revenue in 2024 and had been paid by way of a third-party fee app. This rule has been delayed two years in a row, and 2024 serves as a transition yr to assist fee apps put together for the brand new reporting necessities.
It is attainable the IRS will resolve to delay this rule once more or alter the brink. For now, you need to plan on it transferring ahead to be sure you’re ready come tax time.
For those who’re self-employed, you need to already be paying taxes in your whole revenue, even in case you do not obtain a 1099 from your whole earnings. This is not a brand new rule; it is a tax reporting change. The IRS will probably be switching the reporting requirement to fee apps so it could actually hold tabs on transactions that usually go unreported. For those who had been paid via third-party fee apps this yr, this is what that you must know.
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What’s a 1099-Ok?
A 1099-Ok is a tax type that experiences revenue acquired by way of a third-party fee platform from a non-permanent job, resembling a aspect hustle, freelance settlement or contractor place the place taxes should not withheld.
The IRS at the moment requires any third-party fee apps like Money App and Venmo to ship a 1099-Ok to the IRS and people in the event that they earned greater than $20,000 in industrial funds throughout greater than 200 transactions. For those who recurrently make over $20,000 in freelance revenue, are paid via Venmo, and obtain greater than 200 transactions in funds, you could have acquired a 1099-Ok tax type earlier than.
What’s the new IRS 1099-Ok reporting rule?
Underneath new reporting necessities first introduced within the American Rescue Plan, third-party fee apps will finally be required to report earnings over $600 to the IRS.
In your 2024 taxes (which you will file in 2025), the IRS is planning a phased rollout, requiring fee apps to report freelancer and enterprise proprietor earnings over $5,000 as a substitute of $600. The hope is that elevating the brink will cut back the danger of inaccuracies whereas additionally giving the company and fee apps extra time to work towards the eventual $600 minimal.
Why was the 1099-Ok rule delayed?
Initially set to kick off at the start of 2022, the IRS deliberate to implement a brand new reporting rule that will require third-party fee apps, like PayPal, Venmo, Money App or Zelle, to report revenue of over $600 or extra per yr to the tax company. However the IRS has delayed this new reporting requirement in 2022 and once more in 2023.
Why? Distinguishing between taxable and nontaxable transactions via third-party apps is not at all times simple. For instance, cash your roommate sends you thru Venmo for dinner just isn’t taxable, however cash acquired for a graphic design mission is likely to be. The delayed rollout gave fee platforms extra time to organize.
“We spent many months gathering suggestions from third-party teams and others, and it grew to become more and more clear we’d like further time to successfully implement the brand new reporting necessities,” mentioned IRS Commissioner Danny Werfel in a November 2023 assertion.
Which fee apps are included on this IRS rule?
All third-party fee apps the place freelancers and enterprise homeowners obtain revenue are required to start reporting transactions involving you to the IRS in 2024. Some in style fee apps embrace PayPal, Venmo, Zelle and Money App. Different platforms freelancers might use, resembling Fivver or Upwork, are additionally on the hook to start reporting funds that freelancers obtain all year long.
For those who earn revenue via fee apps, it is a good suggestion to arrange separate PayPal, Zelle, Money App or Venmo accounts in your skilled transactions. This might stop nontaxable prices — cash despatched from household or mates — from being included in your 1099-Ok in error.
Is the IRS taxing cash despatched to household or mates?
No. Rumors have circulated that the IRS was cracking down on cash despatched to household and mates via third-party fee apps, however that is not true. Private transactions involving items, favors or reimbursements should not thought-about taxable. Some examples of nontaxable transactions embrace:
- Cash acquired from a member of the family as a vacation or birthday present
- Cash acquired from a buddy masking their portion of a restaurant invoice
- Cash acquired out of your roommate or accomplice for his or her share of the hire and utilities
Funds that will probably be reported on a 1099-Ok have to be flagged as funds for items or companies from the seller. When you choose “sending cash to household or mates,” it will not seem in your tax type. In different phrases, that cash out of your roommate for her half of the restaurant invoice is secure.
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Will you owe taxes on gadgets offered via Fb market?
For those who promote private gadgets for lower than you paid for them and gather the cash by way of third-party fee apps, these modifications will not have an effect on you. For instance, in case you purchase a sofa in your residence for $500 and later promote it on Fb Market for $200, you will not owe taxes on the sale as a result of it is a private merchandise you have offered at a loss. You might be required to point out documentation of the unique buy to show that you simply offered the merchandise at a loss.
If in case you have a aspect hustle the place you purchase gadgets and resell them for a revenue by way of PayPal or one other digital fee app, then earnings over $5,000 will probably be thought-about taxable and reported to the IRS in 2024.
Be certain that to maintain a very good document of your purchases and on-line transactions to keep away from paying taxes on any nontaxable revenue — and when unsure, contact a tax skilled for assist.
put together for this reporting change
Any fee apps you employ might ask you to substantiate your tax data, resembling your employer identification quantity, particular person tax identification quantity or Social Safety quantity. For those who personal a enterprise, you probably have an EIN, however in case you’re a sole proprietor, particular person freelancer or gig employee, you will present an ITIN or SSN.
In some instances, receiving a 1099-Ok might take a few of the guide work out of submitting your self-employment taxes.
As soon as this rule takes impact, you should still obtain particular person 1099-NEC kinds in case you had been paid via direct deposit, test or money. If in case you have a number of shoppers who pay you thru PayPal, Venmo, Upwork or different third-party fee apps and you earn greater than $5,000, you will obtain one 1099-Ok as a substitute of a number of 1099-NECs.
To keep away from any reporting confusion, be sure you’re monitoring your earnings manually or with accounting software program resembling Quickbooks.
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