The IRS $600 Rule has seen some changes recently and in the 2025 tax season, this rule will be only applied to individuals and small businesses who received $5,000 or more on goods and services instead of $600. Previously in 2023, the reporting threshold was higher at $20,000 and 200 transactions.
The 1099-K form will be provided to those who meet reporting rules and in this form, the taxable earning details through digital third party networks will be included. The digital platforms can be PayPal, Venmo, Cash App, Fiver, Upwork, Zelle, etc. Personal transactions such as money received such as gifts are exempted from reporting.
IRS $600 Rule
The IRS $600 rule is the tax reporting requirement that affects those transactions which are made through third-party payment networks like PayPal, Venmo, Cash App, etc. This rule was reported as part of the American Rescue Plan Act of 2021 and the purpose of this rule is to properly report earned income through these platforms.
Individuals receive tax form 1099-K previously if their earned income was more than over $20,000 and has more than 200 transactions in 2023. For 2024 tax years(for which you will file taxes in 2025), the IRS is requiring third party payment apps to report freelancer and business owner earnings over $5,000 rather than $600.
This rule is only applied to goods and services received payments not on personal transactions such as gift or restaurant bills from your friend. The other details of IRS $600 Rule such as reporting rules changes and 1099-K form are discussed below.
IRS $600 New Rule 2025
The IRS $600 rule is facing some changes such as the income report limit will be $5,000 instead of $600 in 2025 tax filing season (for 2024 tax year). Third party apps send you and the IRS a copy of the 1099-K form which helps you a lot to file taxes.
You have to report your income on tax return according to the 1099-K form detail to avoid penalties and interest on unpaid taxes. The main purpose of this rule is to properly tax your earned income through digital third party networks. You have to stay in touch with officials to get informed changes for IRS $600 new rules.
Why and when will I receive form 1099-K?
The IRS $600 rule which was delayed earlier but now fully implemented in 2025 with some new changes planned by the IRS. In 2025, you will receive 1099-K form only if you meet the new threshold requirements. The IRS is setting the threshold limit at $5,000 for tax year 2024, it means individuals will receive 1099-K form if their earnings from third party apps are $5,000 or more.
This form will be sent to qualifying individuals, small businesses and a copy of this to the IRS in late January 2025. This form includes the details about your goods and services total received payments and the objective behind sending this form is to properly report every single earning for smooth tax purposes.
You will be responsible to report every single earning detail in your tax return according to the 1099-K form otherwise you will face penalties on untaxed incomes. The IRS also uses this form to track your income to ensure all taxable income is reported or not.
Which payment apps fall under IRS $600 reporting rule?
There are several payment apps which fall under IRS $600 reporting rule and these can be for both personal and business transactional use. Payment of some below given apps which receive through goods and services are only included such as:
- PayPal
- Venmo
- Cash App
- Fiver
- Upwork
- zelle
These are some digital third party apps which can be utilised by freelancers, individuals and small businesses to get revenue for their goods and services. All the third party apps from freelancers and small businesses receiving any type of income must be reported on tax return whether you have received 1099-K or not.
Will the IRS tax my personal transactions?
The IRS $600 reporting rule has raised many questions among people such as which type of transaction are excluded to report on tax return. It’s true that not all types of transactions are taxed. Some exempted situations are discussed below.
- If you have received some money from your friends or family members as a gift, then you don’t need to report it.
- If you have received some money from your friend as splitting a dinner bill or paying back a friend for concert tickets are also not taxable.
- Rent or utility shares of your roommates are also tax exempted transactions.
- Transfer of money from personal to business accounts or between family and friends are exempt from the reporting requirement.
You have to keep records of every transaction so you can easily clarify the IRS about the nature of your transaction if needed. These records can help you during filing so you can avoid penalties by providing accurate detail to the IRS.