Key Takeaways
- The IRS counts income from Venmo, PayPal, and Apple Pay as taxable earnings from third-party transactions.
- Form 1099-K helps ensure accurate tax reporting for payments received through payment card networks.
- In 2024, the reporting threshold is $5,000, replacing the old $20,000 limit.
- The plan to reduce it to $600 is delayed until 2025, with the $5,000 rule now implemented.
- You must still report all income on your tax return, even if no form is issued.
Form 1099-K and Why the IRS Keeps Postponing Reporting Rules
This form ensures that businesses properly include these transactions on their tax returns, helping maintain transparency between platforms and the IRS. Originally mentioned in the IRS’s December blog update, the reporting rule was expected to take effect sooner but was extended for another year to give both taxpayers and platforms more time to adapt.
What You Need to Know for Reporting?
The IRS has released new guidance for 2024 reporting, marking it as a transition year for digital payment platforms. According to the update, Form 1099-K reporting will be required when aggregate payments exceed $5,000, no matter the number of transactions. From my experience helping clients navigate tax changes, this phase-in threshold gives small business owners and freelancers a bit more time to adjust before the full rules apply.
In calendar year 2025, the final transition year, the threshold will drop to $2,500, still regardless of the number of transactions.
What You Can Do Now to Prepare?
- If you’re receiving payments through payment apps like Venmo or PayPal that are not business related, such as birthday gifts, sharing the cost of a car ride, or household bill reimbursements, make sure they aren’t coded as a purchase in the app.
- When receiving payments for personal items that are sold at a loss or gain, keep proper documentation showing the basis of the item.
- For business transactions, maintain clear records and report all expenses tied to your income.
- One overlooked consideration is that some states require third-party platforms to report payments at the state level too. Depending on the address of the recipient, you might need separate filings.
What You Need to Know About P2P Platforms?
- Peer-to-peer payment platforms like Venmo and PayPal must report business transactions to the IRS once they exceed the $5,000 threshold in 2024, issuing Form 1099-K to both the user and the agency.
- The limit has reverted to $20,000 and 200 transactions under the One Big Beautiful Bill, signed into law in July 2025.
- Setting up a P2P business account helps avoid mixing personal and business payments. Always keep detailed records of income and expenses to prevent overstating income and paying extra tax.
What is Peer-to-Peer Payments?
Individuals and small businesses now rely heavily on peer-to-peer (P2P) payment apps for convenient mobile money transfers. From splitting a restaurant bill with friends to collecting payment for a small business, apps like PayPal and Venmo have made digital transactions faster and simpler than ever. In my experience, even clients who once preferred traditional methods now embrace these mobile payment options because of their simplicity and real-time accessibility. The growing convenience of these methods has led to widespread adoption in just a few years.
How Businesses Use P2P Platforms?
Third-party payment platforms like PayPal and Stripe were originally designed as online payment solutions for businesses, giving users the option to create both business and personal accounts. Over time, these platforms became essential for small entrepreneurs, freelancers, and e-commerce sellers. From my experience, setting up a dedicated business account helps maintain financial clarity and simplifies tax preparation, especially as reporting thresholds tighten under new IRS rules. Later, Venmo, which is owned by PayPal, entered the scene and became widely popular for personal use.
Tax Implications of Using P2P Apps
Reporting Business Income
P2P platforms like PayPal, Venmo, and Stripe must report business payments to the IRS. Even without a Form 1099-K, you’re responsible for reporting income on your tax return. The $5,000 threshold for 2024, set by the One Big Beautiful Bill in July 2025, replaced older limits.
Keeping Business Accounts Separate
Use a business account to avoid mixing personal and business transactions. Apps like QuickBooks Self Employed help with accurate tracking and simplify tax reporting for small businesses.
Recording Expenses Properly
Save invoices, receipts, and expense reports for all payments made through P2P apps. The IRS treats these like cash transactions, so you must substantiate expenses with clear proof.
Using Smart Tax Tools
Use TurboTax Premium or QuickBooks Self Employed to track deductions and credits. A tax expert or TurboTax Full Service can ensure your records and reporting meet IRS standards accurately.
How the IRS Treats Venmo and PayPal Transactions?
The IRS treats all income received through Venmo and PayPal transactions as taxable earnings, similar to traditional money earned from a job or business. Whenever you make money using these platforms, it becomes a reportable part of your total income. From my experience helping freelancers and small-business owners, many are unaware that casual sales or digital transfers can still fall under IRS reporting.
This rule applies to freelancers, online sellers, and small-business owners who use these platforms to receive payments for products or services.
Understanding the 1099-K Form
The IRS Form 1099-K is an important tax document used to report payments you’ve received through third-party networks like Venmo, PayPal, or Apple Pay. It helps the IRS track income you earn from digital payment apps and ensures accurate reporting during tax filing. For 2024, if your payments on these platforms exceed $5,000, you’ll likely receive this form.
Do You Have to Pay Taxes on Zelle Transactions?
Yes, you must pay taxes on Zelle business transactions, even though it operates differently from Venmo and PayPal in tax reporting. Unlike these other payment platforms, Zelle doesn’t issue a 1099-K form because it doesn’t process payments directly. Instead, it functions as a middleman, transferring business and personal funds between bank accounts. The IRS expects you to report all income you’ve received through Zelle on your tax return just like any other business income.
Tax Reporting Changes for Venmo and PayPal
The IRS has announced new reporting thresholds for Venmo and PayPal, setting the 2024 limit at $5,000. This change marks another delay in the agency’s ongoing plan to lower the threshold from $20,000 to $600 for third-party transactions such as Apple Pay and other platforms. Initially introduced in 2021, the reduction was postponed in 2022 and again in 2025, giving small sellers and businesses more time to adapt. As someone who’s worked closely with freelancers and small shop owners, I’ve noticed how these repeated adjustments help them stay compliant while easing the transition. If you receive more than $5,000 through Venmo or PayPal, you’ll get a Form 1099-K from the platforms for your tax return.
How to Report Venmo 1099-K on Your Tax Return?
- When you get a 1099-K form from Venmo, PayPal, or another third-party network, make sure to report income accurately on your tax return.
- Collect all documents, including 1099-K forms, income records, and business expenses like supplies, equipment, and fees tied to Venmo or PayPal.
- Confirm the total amount on your 1099-K matches your records and fix any discrepancies before filing.
- Report income on Schedule C (Profit or Loss From Business) and deduct related expenses to lower the tax you owe.
- Finally, review all entries for accuracy so your return matches the IRS records.
| Step | Action | Purpose | Outcome |
| Review Form 1099-K | Check the total payment amount reported by Venmo | Ensures accuracy and matches your records | Avoids IRS mismatches |
| Identify Business or Personal Use | Separate business transactions from personal transfers | Prevents overreporting income | Correct taxable income reporting |
| Record Income in Tax Return | Report business income on Schedule C (Form 1040) | Complies with IRS income rules | Properly declares earnings |
| Deduct Related Expenses | Include eligible business expenses | Reduces taxable profit | Lowers overall tax liability |