By: Drew Thompson

This year many Americans will receive unexpected letters from their favorite payment app if they happened to receive $5,000 or more in “Goods & Services” payments during the last year.

In 2024, the IRS announced that it will be rolling out new reporting requirements for applications, like Venmo or PayPal, where people may send and receive payments. The law was most recently changed by the American Rescue Plan Act of 2021 (ARP) which modified the minimum reporting amount for organizations like Venmo.

Originally enacted in 2008, Section 6050W requires “payment settlement entities” to file a report with the IRS, in the form of a 1099-K. A 1099 is most commonly used when paying independent contractors or when reporting miscellaneous sources of income. Independent contractors may be familiar with the 1099-NEC for “Nonemployee Compensation” while its cousin, the 1099-K, is reserved for “Payment Card and Third-Party Network Transactions.”

PayPal and other payment sharing companies will provide reports to users and the IRS of users who received $5,000 or more in “Goods & Services” payments in 2024. Those users will also receive a copy of the filed 1099 with the same information the IRS received, including the amount of gross Goods & Services payments the user received that year. While the law has been in effect since 2008, this is the first time many Americans will interact with Section 6050W due to the combination of the increasing use of payment apps like Venmo as well as the drastic lowering of the statutory reporting threshold from $20,000 in 2008, to $600.

While the statute states that PayPal and similar companies must report and supply 1099s for users with at least $600 in receipts, the IRS has never enforced the $600 trigger. Instead, the IRS typically issues guidance to clarify what threshold it will enforce instead. In the past, that has been around $10,000 to $5,000, as it is this year. Yet, the IRS has also made clear that it will continue to reduce that threshold until it reaches $600 in the future. Until then, most companies will only provide 1099s as required by the IRS guidance. Companies may voluntarily provide 1099s in the meantime. Even though you may have gross receipts under $5,000, if you received a 1099, odds are the IRS did as well.

For many taxpayers, receiving a 1099 from Venmo won’t technically change their approach to tax planning. For example, if you received PayPal payments for group rent, a planned trip reimbursement, or a gift, that money generally will not need to be reported on your income tax statement. If you received a sizable enough gift though (around $18,000), you may need to file a gift tax report if the donor does not.

However, if you are using Venmo to receive business payments for something like a side hustle or other unreported business, the new rule may impact you. The law has always required taxpayers to report all income to the IRS, so the new law doesn’t technically change your reporting obligation. Yet, the new law makes it much easier for the IRS to detect these unreported side businesses. So, if you picked up a side hustle during covid and haven’t been reporting it, this may be the wake-up call you need to start reporting it, or even revise your past tax returns. Even if you received a 1099 for less than $5,000, chances are the IRS received the same document and you need to ensure you report the income.

One of the easiest ways for the IRS to catch non-reporters is when someone files a tax document for you, like a 1099 or W-2 that you failed to file. When the IRS system sees that you failed to file documents that it received from others, it may automatically add those reported amounts to your return while adding interest and penalties. Taxpayers can view documents provided to the IRS on the IRS website by searching “view IRS transcripts” online.

Andrew L. Thompson joined Lane & Waterman in 2024. Andrew primarily specializes in civil defense litigation, encompassing a diverse array of matters such as tax, employment, labor, estate litigation, and other commercial litigation.