The IRS expects you to report all income from payment apps, whether you receive a 1099-K form or not

If you use Venmo, PayPal, Cash App, Square, or similar platforms to receive money—whether for side work, selling items, or any other reason—the IRS considers that income and expects you to report it on your tax return. The agency has been reminding users and tax professionals about this rule because many people assume that income only counts if they receive a formal tax form, or that small amounts don't need to be reported. Neither is true.

Payment apps are required to send you and the IRS a 1099-K form if your transactions meet certain thresholds, but those thresholds have changed over time and vary by state. More importantly, you owe taxes on the income whether or not you receive a 1099-K. If you don't report it and the IRS later matches your app records to your tax return, you could face penalties, interest, and an audit.

Key Takeaways

  • All income received through payment apps must be reported on your tax return, regardless of whether you get a 1099-K form.
  • The 1099-K threshold that triggers a form to be sent has changed multiple times; currently it is $5,000 for most transactions, but some states have lower thresholds.
  • Payment apps report their transaction data directly to the IRS, so unreported income is likely to be flagged during an audit match.
  • You report payment app income on Schedule C (if self-employed) or Schedule 1 (if it is miscellaneous income), depending on the type of work.
  • Keeping records of what the money was for—invoices, receipts, messages about the transaction—protects you if the IRS questions the income.

How payment apps report to the IRS

Payment processors like PayPal, Square, Stripe, and the major peer-to-peer apps file Form 1099-K with the IRS and send you a copy. This form reports the total dollar amount of transactions that moved through your account. The threshold for when a 1099-K must be issued has shifted: it was $20,000 and 200 transactions for many years, then the IRS announced it would lower it to $5,000 starting in 2024, though the implementation has been delayed and varies by state.

The key point is that the 1099-K threshold is not the same as the income reporting threshold. You must report all income, even if you don't receive a 1099-K. If you received $2,000 through a payment app and no form was issued because the threshold wasn't met, you still owe taxes on that $2,000. The IRS has access to the payment processor's records, and they cross-check those records against tax returns filed by users.

What counts as income on a payment app

Not every transaction through a payment app is taxable income. Personal transfers between friends or family members—splitting rent, paying back a loan, or sharing dinner costs—are not income. The money is just moving between accounts, not payment for goods or services.

Taxable income includes: payment for work or services (freelancing, consulting, tutoring, repairs); payment for goods you sold (used items, handmade goods, resold merchandise); rental income; and any other money received in exchange for something of value. If you are unsure whether a particular transaction counts, the rule is simple: if someone paid you because you provided a service or sold them something, it is income.

Which tax form to use and how to report it

Where you report payment app income depends on the type of work. If you are self-employed—running a side business, freelancing, or regularly selling items—you report the income on Schedule C (Profit or Loss from Business). You list your gross income and then deduct business expenses (supplies, equipment, mileage, home office, etc.) to arrive at your net profit, which is what you actually owe tax on.

If the income is one-time or miscellaneous and you are not self-employed, you may report it on Schedule 1 (Additional Income and Adjustments to Income) instead. If you received a 1099-K, the form itself will guide you on where to report it, but the responsibility to report is yours regardless of whether you received the form.

Keep records of what the money was for: invoices you sent, messages or emails describing the work, receipts for items you sold, or any documentation that shows the income was legitimate business activity. If the IRS ever questions a transaction, this documentation is your proof that you reported it correctly.

The risk of not reporting payment app income

The IRS has been increasing its focus on payment app income because the volume of transactions has grown and because many users do not report it. Payment processors file their records with the IRS electronically, and the agency's matching systems flag discrepancies between what was reported to them and what appears on tax returns.

If you do not report income that the IRS has on file, you risk: a notice from the IRS asking you to explain the discrepancy; penalties and interest on the unpaid taxes; and an audit that may extend to other parts of your return. The penalties can add 20% or more to the tax owed, and interest accrues from the original due date. An audit also takes time and may require you to provide documentation for other income or deductions on your return.

Reporting income when you did not receive a 1099-K

If you received income through a payment app but did not get a 1099-K form, you still report it. You will not have a form to attach to your return, but you still enter the income on Schedule C or Schedule 1, depending on your situation. Write down the total amount you received and keep your own records of the transactions.

Some payment apps allow you to download a transaction history or year-end summary from your account. Print or save this for your records. If you can categorize the transactions (which were for services, which were for goods sold, which were personal transfers that should not be counted), do that before you file. It makes the reporting clearer and gives you documentation if questions arise later.

Deductions and expenses you can claim

If you are reporting self-employment income on Schedule C, you can deduct legitimate business expenses. This reduces the amount of income you owe tax on. Common deductions include: supplies and materials; equipment (or the depreciation of equipment); mileage driven for business; a portion of your home office if you have a dedicated workspace; internet and phone costs if used for business; and professional fees (accounting, software, etc.).

Keep receipts and records for all expenses you claim. The IRS does not require you to attach receipts to your return, but you must have them available if audited. Deductions lower your taxable income, which can significantly reduce what you owe, so it is worth tracking them carefully.

Frequently Asked Questions

Do I have to report income if it was just my friends paying me back for something?

No. Personal transfers between friends or family—splitting bills, repaying a loan, or sharing costs—are not income. Income is payment for work, goods, or services. If your friends paid you because you provided a service or sold them something, that is income and must be reported.

What if I received less than $600 through a payment app?

You still must report it. There is no dollar threshold below which income does not count. The $5,000 threshold (or $20,000 in prior years) only determines when the payment processor sends you a 1099-K form. You owe taxes on all income, regardless of amount.

Can I get in trouble if I did not report payment app income in past years?

The IRS can go back three years (or longer if they suspect fraud) and assess unpaid taxes plus penalties and interest. If you realize you missed reporting income, you can file an amended return for those years. Filing an amended return voluntarily is better than waiting for the IRS to contact you, as it may reduce penalties.

What if the payment app sent me a 1099-K with the wrong amount?

Contact the payment processor and ask them to issue a corrected form. If they do, they will also send a corrected form to the IRS. Report the correct amount on your tax return. If the IRS later matches their records to your return and sees a discrepancy, you will have documentation showing the correction was made.

Do I need to pay self-employment tax on payment app income?

If you are self-employed, yes. Self-employment tax covers Social Security and Medicare and is calculated on your net profit (income minus deductions). You pay this in addition to regular income tax. If you are an employee with a W-2 job and receive payment app income on the side, you owe self-employment tax on the side income only.