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Hey everyone! The IRS has some new guidelines for using third-party payment platforms like Venmo and PayPal, and it’s important to understand how they affect you, especially if you’re a freelancer or have a side hustle. These changes, part of the American Rescue Plan, are going to impact how you report your income from these platforms for the 2024 tax year and beyond. Let’s break it down.
New Income Reporting Thresholds for Third-Party Payment Platforms
Starting in 2024, you’ll need to report any earned income over $5,000 on a 1099-K form. That’s a significant change from the previous threshold of $20,000 and more than 200 transactions. This means if you earn over $5,000 through Venmo or PayPal, you need to report it to the IRS. This threshold is set to decrease in the future. In 2025, it’ll drop to $2,500, and then to $600 for 2026 and beyond. This will require extra vigilance in tracking your earnings.
Key Takeaways:
- 2024: Report earnings above $5,000 on a 1099-K form.
- 2025: Threshold drops to $2,500.
- 2026 and beyond: Threshold further decreases to $600.
Important Considerations:
It’s crucial to understand that these rules only apply to income-generating transactions. If you’re splitting rent or other personal expenses with friends, that doesn’t count toward this threshold. This is a significant change that requires careful attention from those who use third-party payment platforms frequently. It’s essential to keep accurate records of your earnings, especially as these reporting requirements will be even stricter in the future.
How to Stay on Top of These Changes
Staying informed about these evolving regulations is key. I’d recommend checking the IRS website regularly for updates. Also, consider signing up for relevant newsletters. The Rossen Reports newsletter, for example, provides valuable insight and tips regarding these IRS updates, and is a great place to get reliable information. It’s really important to prepare for these changes as they become more stringent.
What to do Next
Now that you understand these new reporting requirements for third-party payment platforms, it’s essential to review your transaction history to determine if you are exceeding the specified limits. Consider whether or not these changes will affect your overall financial planning strategy. I encourage you to share this article with your friends and family who might also be impacted. It’s also important to be aware of the potential penalties associated with non-compliance. Leave a comment below with any questions or concerns you have. Let’s work together to stay informed.
