IRS Form 1099-K Shake-Up—Will Your Venmo or Cash-App Transfers Be Taxed in 2025?
Overview
Congress dropped the Form 1099-K reporting floor from $20,000/200 transactions to $600 in the American Rescue Plan Act of 2021. The IRS, citing administrative overload, delayed full rollout. Under Notice 2024-85 the agency adopted a phase-in schedule: $5,000 for 2024, $2,500 for 2025, and $600 for 2026 and later. This article walks you through who receives a 1099-K next January, what actually gets taxed, and how to keep casual reimbursements from triggering audit letters.
1. The Threshold Timeline at a Glance
|
Tax year |
Reporting floor |
Effective filing season |
|---|---|---|
|
2023 |
$20,000 and 200+ tx (old law) |
Spring 2024 |
|
2024 |
$5,000 (no tx-count test) |
Spring 2025 |
|
2025 |
$2,500 |
Spring 2026 |
|
2026+ |
$600 |
Spring 2027 |
The phased approach lets payment apps (“TPSOs”) upgrade compliance systems gradually.
2. Who Gets the Form—and Why It Matters
A TPSO (PayPal, Venmo, Cash App, Stripe, Airbnb, StubHub, Etsy, eBay, etc.) must issue Form 1099-K when payments for goods or services exceed the threshold. Personal gifts, shared-meal splits, or rent from a roommate are not taxable income, but the algorithm can’t tell intent. You must:
- Explain non-taxable entries if the TPSO miscodes personal transfers; backup documentation prevents CP2000 notices.
The IRS reminds filers to report all income regardless of forms received, but underpayment penalties climb when the Service already has a mismatched 1099-K in its database.
3. What Counts as “Goods or Services”?
|
Included |
Excluded (but watch out) |
|---|---|
|
Freelance, gig, consulting fees |
Gifts or reimbursements |
|
Ticket resales, used-item flips |
Rent you collect on behalf of roommates |
|
Drop-shipping / e-commerce sales |
Transfers to yourself between accounts |
|
Craft or hobby sales (Etsy) |
True personal loans to friends |
TPSOs look for keywords, marketplace listings, or a business profile to flag transactions. If your roommate labels the rent share as “June rent,” the platform may tag it as a reportable payment—triggering a 1099-K even though it isn’t income.
4. Backup Withholding Is Coming Sooner Than You Think
Starting January 1 2025 a TPSO must withhold 24 % backup tax on any payee who fails to provide a valid SSN/ITIN—even for the very first transaction; the old 200-transaction exemption disappears. Confirm that your app’s profile shows the correct TIN and legal name long before next year’s holiday-selling season.
5. Record-Keeping Checklist
- Download monthly transaction CSVs from each app.
- Tag personal vs. business inside the app or spreadsheet (color-code).
- Retain purchase receipts for inventory cost or basis documentation.
- Note shipping and platform fees—they reduce gross receipts on Schedule C.
- Screenshot mistaken labels (e.g., “pizza refund”) so you can rebut an IRS notice.
6. Common Scenarios for Casual Sellers
|
Scenario |
1099-K Status |
Best Practice |
|---|---|---|
|
You net $1,800 on eBay in 2025 |
No form (below $2.5 k) |
Still report profit; keep basis receipts. |
|
You flip concert tickets and hit $2,600 |
Form issued |
Deduct ticket cost, fees; use Schedule D if capital asset. |
|
You reimburse a friend $3,000 for vacation costs |
Can mis-fire a form if TPSO flags “services” keyword |
Reclassify transfer in-app and keep Venmo chat as proof. |
|
You run side-hustle graphic design ($9,000 PayPal) |
Form definitely issued |
Issue your own 1099-NEC to subcontractors; set aside SE tax. |
7. Key Takeaways
- $2,500 is the magic number for 2025; $600 looms for 2026.
- Personal transfers can accidentally generate reportable totals—label carefully.
- Keep receipts to deduct cost of goods; report income even if under the threshold.
- Backup withholding applies from the first dollar when no valid TIN is on file.