Peer-to-peer (P2P) apps like Venmo, PayPal, Cash App, and Zelle have made it second nature to send money to friends, split bills, or even run small businesses, but their convenience has also attracted the IRS’s attention. That’s why stricter Peer-to-Peer IRS reporting rules now require payment platforms to flag certain transactions as taxable income.
Over the years, reporting thresholds have evolved, impacting how taxpayers report income from peer-to-peer apps. The current law, however, requires third-party payment platforms to issue Form 1099-K to users who receive more than $20,000 in payments and complete over 200 transactions in a calendar year.
Victory Tax Lawyers have helped thousands of clients resolve issues tied to P2P reporting. If you’re unsure about your reporting requirements, explore our tax relief services or contact us to get immediate help.
As you read on, you’ll understand how IRS peer-to-peer reporting works, what types of transactions are taxable, and the steps you can take to protect yourself from penalties.
What Does “Peer-to-Peer IRS” Mean?
Peer-to-peer (P2P) payments refer to money transfers made directly between individuals through digital platforms, online services, or mobile apps. Unlike regular payment processing, P2P payments bypass traditional intermediaries like banks or credit card processors and simply facilitate the transaction strictly between the parties involved. Some popular P2P platforms include PayPal, Venmo, Zelle, Apple Pay, and Cash App.
In the last couple of years, P2P payment platforms have increased in both popularity and adoption. In fact, industry estimates show the global P2P market was valued at $$2,851.1 million in 2024 and is expected to surge to $14,506.8 million by 2034, reflecting a compound annual growth rate (CAGR) of 17.3% from 2025 to 2034. This trend suggests that millions of Americans use P2P apps as their primary way of sending and receiving money, and the momentum is only set to accelerate.
But the rise of this technology also presents its own unique set of challenges, particularly in the areas of tax compliance and reporting. Despite its growing adoption, many taxpayers are still unclear about when and how P2P payments must be reported to the IRS.
From the IRS’s perspective, P2P transactions are not exempt from tax rules. However, the rules depend on whether it is a personal or business transaction. When you use these platforms strictly for personal reasons, for instance, maybe you’re splitting a dinner bill with a friend or sending money to a family member, you typically are not required to pay taxes on those transactions.
However, when the transactions involve payment for goods or services, the IRS treats them as business income. Generally, when you cross the IRS reporting threshold for business transactions, payment apps (as third-party settlement organizations, or TPSOs) are required to issue Form 1099-K by January 31 of the following year. This form reports payments received for goods or services through:
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Credit, debit, or stored value cards such as gift cards (payment cards).
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Payment apps or online marketplaces, also called third-party settlement organizations or TPSOs.
A common mistake many taxpayers make is assuming that if they do not receive a Form 1099-K, the IRS has no record of their earnings. That is a risky assumption since the IRS has several means of uncovering discrepancies in returns.
Do You Need to Report Peer-to-Peer Payments to the IRS?
No. The point is that P2P payments aren’t all the same for the IRS. The IRS draws a sharp distinction between personal and business-related transactions.
If a transaction is purely personal, it’s non-taxable. So transactions such as birthday or holiday gifts, sharing the cost of a car ride or meal, or paying a family member or another for a household bill are non-taxable and do not trigger IRS reporting or Form 1099-K requirements.
However, it’s a whole different story when it comes to business transactions. The moment you start to accept business payments on a P2P platform, the IRS expects you to report them. Even if your tax liability is small or zero, those payments must still be disclosed.
The reporting rules have evolved in recent years. From 2011 through 2023, P2P platforms were required to issue Form 1099-K to users who had carried out 200 transactions totalling $20,000 or more. Congress, through the American Rescue Plan Act, attempted to lower this threshold to $600 beginning with the 2023 tax year.
However, due to compliance concerns, the IRS has repeatedly delayed enforcement. In late 2023, the agency then announced a phased rollout beginning with $5,000 in 2024, $2,500 in 2025, and $600 in 2026. However, the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, scrapped the phased rollout and reverted the 1099-K reporting threshold back to $20,000 and 200 transactions, beginning with the 2025 tax year.
How the IRS Treats Peer-to-Peer Payments
For the IRS, whether a payment is considered taxable and needs reporting depends on its purpose: personal or business. Here’s how this plays out across major P2P platforms.
How Does the IRS Treat Venmo Payments?
Venmo, one of the most widely used P2P platforms, follows IRS Form 1099-K tax reporting requirements; personal transactions are off the reporting grid and don’t trigger reporting, while business payments tied to business activities must be reported.
As a TPSO, Venmo is required to issue you Form 1099-K if you cross the IRS reporting threshold. For the 2024 calendar year, that means $5,000 in goods or services payments, regardless of the number of transactions. Some states, like Maryland, Virginia, and Illinois, have lower reporting thresholds, which adds another layer of complexity. Your tax attorney can help you clarify your state’s requirements if you’re unsure about them.
Importantly, even if you don’t meet the threshold or weren’t issued Form 1099-K, you are still legally required to report all your taxable income. One way to stay safe, avoid errors, and ensure you’re not mixing up personal and business funds is to make use of separate accounts for both and label all your transfers clearly.
What Are the IRS Rules for PayPal Transactions?
PayPal, one of the oldest and most established P2P payment platforms (and the parent company of Venmo), also follows Form 1099-K reporting requirements. Like the others, personal transfers through PayPal are not taxable. However, it is required to provide information to the Internal Revenue Service (IRS) when users exceed the reporting threshold for goods and services.
For tax year 2024, PayPal was required to issue a Form 1099-K once a user exceeded $5,000 in gross payments for goods or services. Beginning in tax year 2025, the threshold reverts to the long-standing rule of $20,000 in payments and more than 200 transactions.
Again, regardless of whether you receive a 1099-K or not, the IRS expects you to report business transactions. Unless you want to trigger penalties or an audit, you are better off being proactive when it comes to your interactions with the IRS. As always, keeping your business and personal accounts separate will help you avoid mistakes and reporting errors down the line.
How Does the IRS Handle Zelle Payments?
Zelle operates differently from PayPal and Venmo since it connects directly to your bank account. Although in the past it was mostly used for personal transfers, in recent times it has been increasingly used by small and medium-sized businesses.
Unlike Venmo or PayPal, Zelle does not issue Form 1099-K because it does not hold funds; it simply transfers money directly between bank accounts. Meaning, the IRS does not require them to send tax documents for transactions within their network. But that doesn’t mean you’re off the hook. In fact, if you make use of their platform, you have the added responsibility of tracking your business income yourself and reporting it on your tax returns. The rule remains the same: you don’t get taxed on personal transactions, but business income must be reported.
Since Zelle lacks the reporting structure that other platforms provide, the responsibility falls squarely on you. It is really important for you to keep detailed records and label all your payments accurately. This will help you prevent avoidable audits and ensure your taxable business income is distinguishable from non-taxable personal transfers.
How the IRS Tracks Peer-to-Peer Transactions
The IRS relies heavily on information submitted by payment processors to keep track of peer-to-peer transactions. As we earlier mentioned, third-party settlement organizations are typically required to issue Form 1099-K to users who exceed the IRS reporting threshold, while a copy of the form is also sent to the IRS. This means the IRS can cross-check what’s reported on your tax return against the information received from payment platforms.
Beyond automated reporting, the IRS uses audits and data analysis to identify red flags. For example, if it notices large inflows of money labeled as “business payments” or inconsistent reporting, it may trigger their suspicion and cause them to demand an audit.
Tax Implications of Peer-to-Peer Payments
By now, you already know that not every transaction you carry out through Venmo, PayPal, or Zelle is taxable. The IRS is clear on the fact that it expects you to report all business-related transactions. On the other hand, your personal transfers are free from its scrutiny.
That said, documentation is important if you want to be thorough tax-wise. You should have a way of tracking every business transaction carried out, including the amount, date, and purpose of each business payment. This will help you provide the right backup information for your deductions if the IRS ever scrutinizes the accuracy of your expenses.
How to Correctly Report P2P Income
All business income is taxable, regardless of how it’s received. However, how you report it depends on the nature of your work and your business structure. Self-employed individuals and those who freelance are required to report their income on Schedule C (Profit or Loss from Business), attached to their Form 1040. If you belong to this category, you’ll also need to calculate self-employment tax on Schedule SE.
Even if you don’t have a formal business, if you earn money through odd jobs, side hustles, or hobbies, it is still taxable. This is usually reported as “Other Income” on Form 1040. If you’ve registered a business entity, make sure you report your P2P income on the appropriate return for your structure (e.g., Form 1120 for corporations, Form 1065 for partnerships, or Form 1120-S for S Corps).
Tips for Staying Compliant With IRS Rules
Staying compliant with IRS requirements doesn’t have to be overwhelming. By putting a few simple practices in place, you can reduce the risk of errors. Here are some best practices you can follow today:
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Keep separate accounts: If you process some or all of your business payments through P2P payment platforms, then it is best to simply open up a business account. That way, you can maintain separate records for your personal and business transactions.
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Use accounting software: Accounting software that integrates with your platform of choice can come in real handy when dealing with tax math. Luckily, there are a number of them that integrate seamlessly with most P2P platforms. They can help you automatically track income, reconcile transactions, and prepare accurate reports.
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Label your transactions clearly: Most payment platforms allow you to tag or label your payment as either “goods and services” or “personal”. They also allow you to include detailed transaction descriptions. Use this feature to make sure the purpose of each payment is clear. For example, instead of simply writing “payment,” write “March website design invoice.” Detailed labeling will help you distinguish taxable income from non-taxable transfers and create a useful paper trail if the IRS ever reviews your account.
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Save Documentation: Good documentation is your best defense. Save receipts, invoices, bank statements, and other financial details that relate to your P2P transaction. If necessary, consider taking screenshots related to your P2P transactions.
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Reconcile Regularly: Do not wait until it’s tax time to compare records. Reconcile your P2P records against your bank statements or accounting software monthly. Doing so will make it easier to catch mistakes, double-check totals, and ensure nothing slips through the cracks before the IRS comes knocking.
Unsure About Reporting P2P Payments?
The IRS is paying closer attention than ever to peer-to-peer transactions, and the reporting rules aren’t getting any simpler. While changing tax laws can be confusing, one thing is constant: if you earn money through P2P payment processors, you are expected to report it, even if you don’t receive a 1099-K.
Not sure about your next steps? Our expert attorneys at Victory Tax Lawyers have saved clients over $91 million in tax relief. Contact us immediately for a confidential consultation and get peace of mind in less than 30 minutes. Want an in-person meeting? Our Los Angeles office is open and ready to welcome you.
Frequently Asked Questions
Below are answers to common questions that we get every day at the office:
Does Venmo Tax You?
No. Venmo itself does not tax users. However, the IRS requires you to report taxable income received through Venmo, whether or not you receive a 1099-K.
Are Peer-To-Peer Payments Taxable?
It depends. The IRS has explicitly stated that personal transactions between friends or family are not taxable income. Business transactions, on the other hand, affect your tax return.
Can Small Personal Payments Trigger IRS Audits?
Generally, small personal transfers between friends and family do not trigger audits. However, repeated or high-dollar transfers labeled incorrectly as “personal” when they are actually business income may raise red flags.
What Records Should I Keep for P2P Transactions?
Keep invoices, receipts, bank statements, and digital records (such as screenshots or payment notes).
