Payment apps are now required to send payment information to the IRS. If you use these apps you may owe taxes this year.
MINNEAPOLIS — The 2025 tax filing season has officially begun.
Americans can now file their 2024 tax returns to the IRS, and CPA Scott Kadrlik, who works with DSB Rock Island, says the 2025 tax season should be less complicated than in recent years.
“There aren’t many changes this year. It’s a pretty typical year for most tax professionals,” Kadrlik said.
However, there is one change that will affect a lot of Americans who use payment apps like PayPal and Venmo.
In November of 2024, the IRS released an outline for how these payments will be treated in the upcoming tax years. According to the IRS, anyone who received more than $5,000 through a payment app in 2024 could receive a 1099-K tax form. This tax form will also be sent to the IRS.
In 2025 the threshold will drop to $2,500, and then in 2026 the threshold will drop again to $600.
“This affects a lot of people. If you’re an Uber driver, or Lyft, or driving through Door Dash, or anything you do on Shopify, Etsy, or eBay. These organizations are all going to be reporting this to the IRS,” Kadrlik said.
However, not every transaction will be reported to the IRS. Kadrlik says personal transactions will not be reported as long as they are labeled correctly.
“If you use PayPal and use the ‘Friends and Family’ setting, those transactions should be excluded from the 1099-K reporting,” Kadrlik said.
Here are some examples of personal transactions:
- A few friends are using a payment app to split the cost of a pizza
- A few roommates are using an app to split the cost of rent for the month.
- Family members are paying each other back for a holiday gift they purchased together.
Each payment app has its own system for categorizing business transactions versus personal transactions.
There is a good chance that mistakes will be made in these first few years, so payment app users should check their records just to be safe.
“If you do receive a 1099-K by accident or in error you need to let the provider know. You should let the company like PayPal know so the transactions are coded correctly,” Kadrlik says.
“You would still need to report that income on your return, but also taking a deduction. You would pick it up as ‘other income’ on your return and then subtract it off as an ‘other’ adjustment.”
However, if the payments are truly income from a one-time job or a side hustle, then the recipient must report the income to the IRS.
Kadrlik says anyone who ignores these 1099-K forms will likely receive a letter from the IRS requesting more information regarding this form.
If this letter is ignored, Kadrlik says the IRS will simply add the amount listed on the 1099-K form to the recipient’s total income for the year, which would likely increase the amount of taxes they owe.