Have you ever received a payment through Venmo, Cash App, or Zelle and thought, “No one will know about this”? If so, you’re not alone. Many small business owners and freelancers believe that using these popular apps will keep their earnings invisible to the government. However, the truth is that the IRS is paying closer attention to these transactions than ever before. You don’t want to end up surprised by an audit or a penalty—so it’s important to understand how these new rules affect you.
The American Rescue Plan Act and Form 1099-K
A major reason for the increased focus on payment apps comes from the American Rescue Plan Act of 2021. This law originally required third-party payment platforms, like Venmo and Cash App, to report users who earned over $600 per year through business transactions. Even though the $600 threshold was delayed, the IRS still plans to start enforcing stricter rules soon.
In IRS Announcement 2023-34, the government said they will use a $5,000 threshold in 2024 before going down to $600. Once payment apps begin sending out Form 1099-K forms to users, the IRS will see that income—meaning you won’t be able to hide it. You can find more information about the announcement here: IRS Announcement 2023-34
IRS Monitoring of Apps like Venmo, Cash App, and Zelle
Apps like Venmo, Cash App, and Zelle were once mostly used between friends to split dinner bills or pay rent. Now, businesses are using them, too. The IRS is requiring these companies to file reports on large or repeated transactions. According to IRS Announcement IR-2022-226, the IRS wants to make sure people aren’t underreporting their income or skipping out on taxes. Read the full announcement here: IRS Announcement IR-2022-226
If the IRS notices a difference between your reported earnings and the amounts shown on a 1099-K form, you might be audited. An audit can take a lot of time, money, and energy—all of which can distract from running your business.
Possible Penalties and Audits
Failing to report all your income from these payment apps can lead to:
- Fines and Penalties: You could get charged extra fees for not reporting income correctly.
- Interest on Unpaid Taxes: Any late taxes will start piling up interest, so your debt keeps growing.
- Stressful Audits: The IRS can look deeply into your finances, which can be both time-consuming and overwhelming.
Trump’s Proposal to Remove Federal Taxes on Tips
President-elect Donald Trump has suggested removing federal taxes on tips, which might help people working in the service industry keep more money. However, this idea—part of the Trump 2024 Campaign Tax Plan—is still only a proposal. There’s no telling if or when it might become a real policy. In the meantime, you still need to follow current tax laws.
How to Stay Safe
- Keep Good Records: Write down all of your transactions, whether they come from a payment app, a bank deposit, or even cash.
- Talk to a Professional: An accountant or tax advisor can help you figure out your obligations and keep you compliant.
- Make Sure You’re Reporting Correctly: Don’t guess on your taxes. If you receive Forms 1099-K, include them in your tax returns.
Final Thoughts
Payment apps are not a secret hideaway from the IRS. As soon as these stricter rules go into effect, every 1099-K form is like a spotlight on your income. Rather than taking a risky shortcut, focus on following the guidelines. Keep your records up to date, seek expert advice, and make sure you report everything. It may feel like more work, but being honest and organized now could save you a lot of trouble later.
