The US Internal Revenue Service (IRS) is updating its rules and progressively reducing the income thresholds to be reported, mainly affecting freelancers and small businesses that receive payments on digital apps such as PayPal, Venmo or Cash App.The main objective of these modifications is to reinforce control over income obtained through digital platforms, especially in commercial or professional activities. Although personal transfers between friends or family will continue to be exempt, these changes will affect millions of Americans who use this method to sell products or services.
Specifically, the IRS has established a schedule for gradually reducing the minimum amount to be reported. The $600 threshold initially established in the 2021 American Rescue Plan is expected to be fully implemented by 2026.
New IRS requirements for reporting PayPal transactions from 2024
Currently, businesses or taxpayers must file Form 1099-K if they have exceeded $20,000 a year in income, with at least 200 transactions. However, the IRS will lower these limits in the coming fiscal years. Fiscal year Reporting threshold:
- 2024 More than $5,000
- 2025 More than $2,500
- 2026 and onwards From $600
Before and after this table, it is important to clarify that only payments for business or professional activities are declared. Personal purchases or shipments to family members will not be affected.
Sectors most affected and how to distinguish personal payments from commercial payments
The measure will have a major impact on freelancers, online sellers and small businesses that use digital applications as their main form of payment. To avoid penalties or misunderstandings, the IRS recommends keeping a detailed record of each transaction, specifying whether it corresponds to sales of products or services (subject to tax) or whether it is simply a personal transfer.
In this sense, the 1099-K form, which is provided by platforms such as Venmo or Cash App, will be of utmost importance. These companies are already notifying their users to separate their personal accounts from their business accounts and to review their tax information before the new limits come into effect.
Steps recommended by the IRS to adapt to the new income reporting thresholds
To comply with the requirements efficiently and smoothly, the Internal Revenue Service suggests:
- Keeping tax information up to date: Check that the tax identification number (TIN) or Social Security number (SSN) is correctly associated with the payment accounts.
- Differentiating between personal and professional accounts: Opening a separate profile for business operations helps to avoid errors when filing and facilitates income management.
- Record all transactions: Save evidence and details of each payment received or sale made. This speeds up the preparation of the return and demonstrates the nature of the payments.
- Consult with professionals: Having the support of a tax advisor or accountant can be key to fully understanding the implications of these changes.
The IRS has confirmed that the filing season will begin on January 15, with the option of using the Free File program for taxpayers with incomes below $73,000 per year. The deadline for filing returns for the 2024 tax year will be April 15, 2025. Those who need an extension must request it before that date. For more articles related dont hesitate to visit the economy section of this digital newspaper.
