Taxpayers Must Prepare to Pay Taxes on More Transactions Involving Venmo and Other Online Payment Apps by Savannah Cabrera Snow, CPA
If you accepted more than $5,000 in online business payments in 2024 for goods and services via platforms such as Venmo, PayPal, eBay, Airbnb and Cash App, the IRS expects you to pay taxes on those earnings come April 15, 2025.
While the IRS has always considered these payments as taxable business income, many taxpayers failed to keep accurate records and report them on their tax returns. This began to change under a 2021 law that requires online marketplaces, payment apps and other third-party settlement organizations (TPSOs) that process these payments to report the transactions to taxpayers and the IRS on Form 1099-K, just as credit card companies have always done. With this new reporting requirement, it is more important than ever that you keep detailed records of your income and expenses to ensure proper reporting and payment of your correct tax liabilities.
The IRS has taken a phased-in approach to the law, compelling TPOs to issue 1099s to taxpayers who receive more than $5,000 in online payments in 2024. The reporting threshold decreases next year to apply to taxpayers who received more than $2,500 in annual gross payments in 2025 and more than $600 in 2026 and beyond. As a result, a significantly higher number of taxpayers can expect to receive 1099-Ks for the coming years and be required to pay related taxes.
Form-1099-K shows the gross commercial payments you received through payment cards and third-party network transactions for your primary business, your work as a full-time or part-time freelancer or independent contractor or the sale of items as services considered a hobby. The reported amounts do not include adjustments for transaction fees, credits, discounts, refunds or cash equivalents, which you may use along with other qualifying business expenses to offset your gross taxable income.
The reporting requirements also extend to taxpayers who sell personal items, such as used clothing, jewelry, artwork and furniture, for more than they paid to acquire them. However, taxes are due only on sales that result in a gain. Moreover, taxpayers can rest easy in knowing that payments they receive from friends and family as a gift or expense repayment are not reportable on Form 1099-K. This may include costs incurred from sharing an Uber ride or repaying a friend or family member for the taxpayer’s portion of a meal or a household expense.
It is critical that you maintain detailed records of all transactions processed by TPOs, separating personal gifts from taxable sales and comparing them to the amount reported in the 1099-K to ensure the accuracy of the reported amounts. Forms 1099-K were due to payees by January 31, 2024, so be on the lookout for notifications or mail from third-party settlement organizations where you accepted funds during the 2024 year.
About the Author: Savannah Cabrera Snow, CPA, is an associate director of Tax Services with Berkowitz Pollack Brant Advisors + CPAs, where she provides tax planning and consulting services to U.S. and multi-national businesses and their owners. She can be reached at the firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or info@bpbcpa.com.
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