What Is the IRS 600 Dollar Rule?
Prior to 2021, people earning money from side gigs did not have to report this income unless they made more than $20,000 in one year or received over 200 transactions/payments.
For example, if someone freelanced as a website designer in 2020 and was paid via PayPal or Venmo, they didn’t have to file taxes on income less than $20,000 as long as they received fewer than 200 payments.
Under new IRS rules regarding side gig work, freelancers or contract workers making over $600 per year, regardless of the number of transactions posted on their third-party payment platform, should receive a 1099-K form and report that income to the IRS.
The new $600 IRS rule is part of the American Rescue Plan of 2021.
When Does the IRS $600 Rule Begin?
Originally scheduled to impact earnings made in 2022, the $600 rule was delayed due to administrative problems regarding the issuance of 1099-Ks. The IRS also wanted to delay the start of the $600 tax rule in order to give people more time to familiarize themselves with what to expect from new tax guidelines.
Currently, the IRS expects the 600 dollar rule to take effect beginning January 1, 2024. Income earned by gig workers during 2023 will be subject to the $600 tax rule.
What Types of Payments are Subject to the New $600 IRS Rule?
Payments received by gig workers, contract workers, and freelancers through a third-party payment platform in return for completing a task are subject to the $600 rule.
Third-party payment platforms include:
- PayPal
- Venmo
- CashApp
- Stripe
- Square
- Helcim
Keep in mind that the owner of a third-party payment platform account must receive over $600 in one year in that account before they have to submit a tax form to the IRS.
What are the Exceptions to the IRS 600 Dollar Rule?
At this time, there are only three exceptions to the $600 rule:
- You didn’t earn more than $600 for the year from performing freelance/gig work.
- You did freelance/gig work but did not collect payments from customers or clients using a third-party payment platform.
- You have a freelance/gig work business and didn’t make a profit.
Money sent by family members or friends that do not involve payments for services or goods is also exempt from the $600 IRS rule. The IRS recommends that people using third-party payment platforms make sure that personal payments are clearly marked on their payment app transactions.
How Does the IRS $600 Rule Impact Businesses and Individuals?
Businesses that rely on gig workers and freelancers will have to mail a 1099-K to all individuals they paid more than $600 in return for services or products. Companies may also offer a digital copy of a completed 1099-K in addition to a 1099 NEC (non-employee compensation) and/or a 1099-MISC.
Some people may need to use the 1099-MISC form if they made at least $5,000 from direct sales of products to buyers for the purpose of resale.
How Do You Report Payments Over $600 to the IRS?
On the 1099-K form, Box 1a contains the “gross amount of payment card/third-party network transactions.” Box 3 contains the number of payment transactions the person received over one year. The federal income tax box will be blank or show “0.”
If you only worked as a gig worker/freelancer, then you must file a tax return for the gross amount found in Box 1a on the 1099-K form. If you have two different types of income for the year — freelance/gig work and W-2 income — you will have to add both incomes together and report that income.
What are the Penalties for not Complying with the IRS 600 Dollar Rule?
The same penalties handed down by the IRS for not reporting income accurately or failing to file taxes are applied to noncompliance with the $600 rule. If you do not report gig/freelancer income exceeding $600 and owe taxes, you will receive a notice from the IRS demanding payment.
Need more help? You can start online by answering 6 simple questions. We never charge for ‘investigations’ or consultations. You can also call us at 866-568-4593.
6 Simple Questions. Free Evaluation.
Join our Newsletter
Enter your email address to join our free newsletter. Get all the latest news and updates.
FAQs
The new ”$600 rule”
How does the $600 IRS rule work? ›
Form 1099-K tax reporting: $600 rule
In the last year or so, you may have heard about the “$600 rule.” This refers to situations where payments you receive for goods or services through third-party payment networks and online marketplaces like Venmo, PayPal, Amazon, Square, eBay, Etsy, etc. exceed $600.
Did IRS delay $600 reporting threshold? ›
This is a positive development for most taxpayers, as those with more than $600 but less than $5,000 in transactions will not experience this new tax reporting to the IRS until tax year 2024. However, even with this delay, the new reporting rule creates a tax dilemma.
Do I have to report income of $600? ›
Yes. The IRS requires that you report all of your income, even if it's less than $600 and you didn't get a tax form for it. Follow these steps to enter your income.
Will Zelle be taxed in 2024? ›
All third-party payment apps where freelancers and business owners receive income are required to begin reporting transactions involving you to the IRS in 2024. Some popular payment apps include PayPal, Venmo, Zelle and Cash App.
Does Zelle report to the IRS for personal use? ›
Zelle® does not report transactions made on the Zelle Network® to the IRS. The law requiring certain payment networks to provide forms 1099K for information reporting does not apply to the Zelle Network®. Does Zelle® tax me on money that I receive? Zelle® is a payment platform.
Is selling personal items considered income? ›
Personal items sold at a gain
If you made a profit or gain on the sale of a personal item, your profit is taxable. The profit is the difference between the amount you received for selling the item and the amount you originally paid for the item.
Will IRS find unreported income? ›
The IRS receives information from third parties, such as employers and financial institutions. Using an automated system, the Automated Underreporter (AUR) function compares the information reported by third parties to the information reported on your return to identify potential discrepancies.
Does Venmo report to IRS for personal use? ›
But if you use Venmo for certain types of transactions, you could be on the hook for taxes. The good news is that personal transactions on the payment platform typically don't generate tax liability. It's when you use Venmo for business purposes that you need to prepare for a tax bill.
What cash transactions are reported to the IRS? ›
Generally, any person in a trade or business who receives more than $10,000 in cash in a single transaction or related transactions must complete a Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or BusinessPDF.
In most cases, if your only income is from Social Security benefits, then you don't need to file a tax return. The IRS typically doesn't consider Social Security as taxable income.
Do I have to file a 1099-INT if under $600? ›
File Form 1099-INT, Interest Income, for each person: To whom you paid amounts reportable in boxes 1, 3, or 8 of at least $10 (or at least $600 of interest paid in the course of your trade or business described in the instructions for Box 1.
What is the $600 tax credit for 2024? ›
If you worked or were self-employed and had earned income under $63,698, you could receive the Earned Income Tax Credit (EITC) 1 by filing a tax return. If you are eligible for this credit, the maximum amount you could receive is: $600 if you have no dependent children. $3,995 if you have one qualifying child.
Is the $600 tax rule delayed? ›
The implementation of the Internal Revenue Service's ”$600 rule” is being postponed until next year, giving affected taxpayers one more year before they may start receiving tax forms triggered by the new lower reporting threshold.
Does Apple cash report to the IRS? ›
Beginning January 1, 2022, all mobile payment apps, including Venmo, PayPal, and Cash App, must report annual commercial transactions of $600 or more to the IRS. The change to the tax code was part of the American Rescue Plan Act passed in March 2021 and will have a drastic impact on how people do business.
Do banks report deposits to the IRS? ›
Depositing a big amount of cash that is $10,000 or more means your bank or credit union will report it to the federal government. The $10,000 threshold was created as part of the Bank Secrecy Act, passed by Congress in 1970, and adjusted with the Patriot Act in 2002.
Do you have to claim the $600 stimulus on your taxes? ›
If you qualify, or think you may qualify, for the Golden State stimulus payment you need to file your 2020 tax return. If you qualify for CalEITC, make sure you claim it on your return.
