If you use PayPal, you might not know if the money you received needs to be reported on your tax return. Recent changes to federal reporting rules for apps like PayPal, Venmo, and Cash App have added to the confusion.
Here’s a quick breakdown of the current reporting thresholds, which tax form you may receive for business payments, and when PayPal income is taxable for freelancers, contractors, and small businesses.
The short answer is: If you received payment for goods or services through PayPal, that money could be subject to income tax by the Internal Revenue Service (IRS). But money sent between friends and family is not. Here’s a breakdown.
When business owners or self-employed individuals accept any payment for goods and services via a credit card, debit card, payment app, or even cryptocurrency, it’s considered business income. You’re responsible for correctly reporting it, but you aren’t the only one reporting to the IRS. If you conduct a certain amount in business transactions during the calendar year, PayPal and other payment apps are required by tax laws to provide your tax information both to you and directly to the IRS by completing a Form 1099-K.
There are two exceptions to this rule. The first is if someone sent you money flagged as “payment for goods and services” into your personal account. The second exception is if you sold a personal item for a profit, in which case the profits are subject to tax.
An example is hobbyists who flip furniture as a side hustle. If you bought an old cabinet for $40 and then put in some supplies and elbow grease to flip it for $220, the difference would be considered income. The good news is the supplies you used and the cost of the cabinet can be considered a business expense.
If you use PayPal to send money to pay your share of expenses with a roommate or repay your mom for a purchase, those transactions aren’t subject to income taxes. PayPal calls them “Friends and Family payments,” and they aren’t reported to the IRS and don’t go toward meeting the reporting threshold for third-party payment apps.
Here are a few scenarios to help you determine which types of payments fall under IRS rules for income reporting and which ones are exempt.
Examples of business transactions:
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Receiving payment for cleaning, food prep, or other professional services
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Being paid for handmade jewelry or crafts
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Flipping furniture and selling it for a profit
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Earning money for mowing lawns or pet care
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Getting money for providing transportation or delivering meals
Examples of personal transactions:
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Receiving money for a dinner check you split with friends or family
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Selling your used couch for less than you paid for it
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Receiving money from your roommate to cover the groceries
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Sending money to your partner for half the month’s utilities
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Getting money to cover the cost of gas or a hotel for a group trip
Read more: 18 small business tax deductions worth knowing
For the 2025 tax year and beyond, the federal reporting threshold for third-party payment apps is $20,000 in gross payments and more than 200 transactions.
The IRS updated its 1099-K reporting requirements following the passage of the One Big Beautiful Bill Act in July 2025. This law retroactively repealed the lower $600 threshold from the 2021 American Rescue Plan and halts the previous phase-in plan.
Read more: Do you have to pay taxes on Cash App transactions? Here’s what the IRS says.
If the total payments to your PayPal business account meets the reporting threshold, PayPal will email you a notification when your 1099-K forms are available for download. You may also receive one of these tax documents if you have a personal account that met the reporting threshold for transactions flagged as goods and services payments.
To ensure you receive an accurate 1099-K form, PayPal suggests you keep your business and personal account information updated with your correct address and Social Security or tax identification number (TIN). Keep in mind you may still need to make tax payments on PayPal, Venmo, or Cash App income even if you don’t receive a Form 1099-K, especially in states that have lower reporting threshold, such as Maryland, Massachusetts, Vermont, Virginia, and Illinois.
Read more: What is taxable income (and how can you reduce it)?
If you didn’t receive a 1099-K form, it may be available for digital download on the PayPal website. Log into your PayPal account, select “activity” from the menu and choose “tax documents” under the reports section.
The IRS says you shouldn’t miss the deadline to file your taxes if you didn’t receive a Form 1099-K or if you believe the one you received is inaccurate. You can request an updated document, and in the meantime, report the amount from your incorrect Form 1099-K in the entry space at the top of Schedule 1 (Form 1040), “Additional Income and Adjustments to Income.”
If you received a Form 1099-K but didn’t have any business income, you can put “Form 1099-K received in error” on your Schedule 1 Form 1040 either on Part I, Line 8z under “Other Income” or on Part II, Line 24z under “Other Adjustments.”
Yes, all third-party payment apps such as PayPal, Venmo, or Cash App are generally subject to the same tax rules and reporting thresholds. So whether you’re a sole proprietor or a bustling small business, if you have a business account that accepts payments on one of these payment processors, expect to receive a 1099-K form if you made more than $20,000 in 2025.
Zelle simply transfers money between banks or credit unions, so it isn’t a peer-to-peer payment system. Freelancers or self-employed taxpayers who received income on Zelle should report that income on Schedule C of their federal tax returns.
Not sure if you should report payments you received on PayPal as income on your federal tax return? Consult with a tax professional to receive accurate tax advice for your situation.
Read more: Do you have to pay taxes on Zelle transactions?
Personal payments between family and friends aren’t taxable and don’t count as income. However, business payments for goods and services made into your PayPal business or personal account are considered taxable income and will be reported to the IRS once the transaction threshold for the tax year has been met.
Some states have lower reporting thresholds than the current IRS tax rules. This includes Maryland, Massachusetts, Vermont, and Virginia which require third-party payment platforms to send a 1099-K form for any number of business transactions totaling $600 or more.
Illinois has slightly different thresholds which must be met including $1,000 in payments for goods and services and four or more separate transactions. Missouri sets its reporting threshold at $1,200.
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