The IRS had announced a delay in the reduction of the income reporting thresholds for third-party settlement organizations (TPSOs) such as PayPal, Venmo, and CashApp late last year. Unless another IRS reporting delay is announced soon, the new regulation will impact your 2023 freelance tax filing, specifically for Form 1099-K. This is critically important if you derive any income from these platforms because you must report all income to the IRS or risk an audit, penalties, and fines for not doing so.

The 1099-K reporting threshold in 2023 of just $600 is much lower than the previous reporting threshold of 200 transactions per year exceeding an aggregate of $20,000. It is a requirement that TPSOs report the sales of each seller on their platforms on a 1099-K Form. This does not apply to personal transactions between friends or family members for incidental, personal purchases.

The change in 1099-K reporting is part of The American Rescue Plan of 2021 which adjusted the law beginning Jan. 1, 2023 to require TPSOs to report third-party network transactions paid in 2022 with $600 in aggregate payments, no matter how many transactions were involved. TPSOs report these transactions by providing the IRS Form 1099 K to affected taxpayers.

Tips for reporting third-party payment app income for the 2023 tax year

Use these tips to help you ensure that you track all of your transactions and income from third party apps and all other sources of income.

1. Report all freelance business income on your 2023 tax return no matter where it comes from.
2. Be sure to report all income on your freelance tax return unless it is excluded by law, whether you receive a Form 1099-NEC, Nonemployee Compensation; Form 1099-K; or any other information return.
3. Make sure to factor in any income from third-party payment platforms in your estimated tax payments at the federal, state, and local levels.
4. Plan to pay tax on the money you earn or receive from third-party payment platforms throughout the year, either through withholding or estimated tax payments. If these payments are in addition to a W-2 job or pension, and your tax withholding for these income streams is not enough, you will need to make additional estimated tax payments.

Prepare for the impact of new 1099-K thresholds on your 2023 freelance taxes

If you have multiple revenue streams from TSPOs and other sources it is vital that you can accurately track and report all of the transactions you are facilitating. This will help protect you in the case of an audit and give you the most accurate numbers that you can use to plan for your tax obligations and how much you need to report on your 2023 taxes under the new tax laws related to 1099-K and third party payment platforms. As a final reminder, remember that all income, no matter where it comes from, must be reported on your tax return.