Haunted by 1099s: PayPal, Venmo & the New Rules

What’s scarier than Halloween? For bookkeepers, it’s the ever-changing 1099 rules. This October, our resident Bookkeeping Mensch, Paul Rosenblum, suits up in his “bookkeeper costume” and dives into the latest PayPal and Venmo 1099 updates. Between the ghosts of shifting IRS thresholds and the rise of AI-generated everything, Paul reminds us why the human side of bookkeeping still matters. He shares his process, his doubts, and his trademark humor as he untangles what the new $2,500 threshold means for 2025 taxes—and why Zelle might (or might not) escape the chaos.

Transcript

Season 6 Episode #4

Well, it’s almost Halloween and I’m planning on getting a very scary costume to go out for trick or treat.  I am dressing up as a bookkeeper and a bookkeeping teacher and podcast host! I’ll have wireless headphones and a microphone strapped on, and you won’t see my real face, but I’ll wear a mask of my own face over my own face. Nobody will know!  I’ll also wear a costume that has numbers covering every square inch of it.  There will be screaming in my neighborhood!  

Since this is the beginning of tax season for us bookkeepers, in this episode, I will be talking about the latest update to the PayPal and Venmo 1099 situation. There will be a tax tip later in the episode, so listen to the end and listen to the end of all the episodes if you smile at least once as you listen to your current episode.  

Before I speak about the above subject, discussions keep on coming up about A.I. and podcasting.  I am not against A.I. (when it’s perfected a whole lot more), but not as a way of writing episodes for me. There are books on Amazon that might be written by A.I., but there are no laws or regulations telling the ‘author’ that it has to be announced. There should be books written by authors and books written by A.I. and labeled separately.  And the same with podcasts. I want to let everyone know, although I have said this before a long time ago, that right now, you are listening to my imperfect human voice, and the information that I give you in every episode is verified (not through A.I.), and I write, edit, and tweak the transcripts myself. I record the episodes myself and a 15-minute episode could take an hour to an hour and a half to record, because I’m thinking about everything from valid, understandable information and how I present to you, so that you can absorb and enjoy every episode the best way possible. Even as a bookkeeper, I have ‘taught’ my clients along the way at the same time that I have put their books together, whether they like it or not!  I consider this podcast to be an educational one.  Part of education, to me, is adding a sense of humor, and making it interesting, not just facts like one traditionally learns in public schools. I am having a good time putting these episodes together, and I hope you are having a good time listening.  Tell your friends and challenge them to learn something that they didn’t think they ever could! And as always, leave me fan mail or drop me voicemail from the website – always love hearing from all of you.  Ok, Ok -- now on to our regularly scheduled episode --- 1099’s for the 2025 tax season. Oh, yes, I’m Paul Rosenblum.

Let me start by saying that with my research on this subject, it’s unclear if Zelle payments are affected by this new 1099 NEC law. If you write a paper check or online bill pay – these are not affected. It’s the third-party payment apps, and they include PayPal, Venmo, Stripe, Square and Cash App among others. The threshold for many years has been $600.00 or over, so the business who pays another business through these apps would need their bookkeeper to provide a 1099 NEC (for non-employee compensation). $599.00 did not need to have a 1099 issued, but remember, all income should be reported for the recipient, even without a 1099 form attached. In this recently passed tax bill, the thresholds were changed. 

The thresholds for 2025 taxes (Jan-April 2026) are now much higher in some cases. If a business pays a subcontractor, for example, not using a third-party app, the threshold is still $600.00.  If $2,500.00 or more per year is paid to someone through a third-party payment app, then Venmo, PayPal and all others would have to send a 1099K to the recipient and to the IRS. So, it’s out of the bookkeepers hands.  1099K’s have been used for businesses that accept credit cards for customer payments for years.  Now, all third party, except Zelle (we think) will be using them. 

If this doesn’t change when actually written into the IRS tax code (and yes, it still could-- even though there are only 2+ months left until the year ends), then my job will be so much easier. At least in theory. Most of my clients who pay subcontractors with Venmo or PayPal do not meet the requirement – The $2,500 a year.  So, in theory, I won’t have to do any 1099’s for those people.  However, as I have talked about before, if a company is using the “Friends and Family” version of PayPal, for example, and mix and matching paying friends for their half of dinner, and paying subcontractors who provide services to their businesses, how will PayPal and Venmo and the others differentiate business transactions and personal ones?  There are many subcontractors who have used PayPal ‘Friends and Family’ accounts to accept money for their businesses. And they are under their personal name, not the business name.  If a subcontractor gets paid $100 for one hour of work, how will the third-party apps know it's not for a meal being split between two or three people for a birthday party?  Or a gift for a friend? How will they know that the $100 is a business transaction?  Maybe those payments were paying back a personal loan that a friend made to another friend? 

 Should we as bookkeepers and businesspeople still send 1099 NECs for the third-party apps even though we aren’t required to?  I feel strongly that if I did that, they would not match the third party 1099K’s that they will be sent to the IRS. Then it will be between the client and the IRS. Do I want to do that to my clients, or do I want not to do 1099 NEC’s, and have the a third party app send the client a 1099K for the wrong amount and have them ask me what are MY numbers?  Then, what do we do?  I feel like I’m between a rock and a hard place yet again. As a bookkeeper, I have a lot of anxiety as to what I should do in Jan 2026 that pertains to the 1099 situation. Change isn’t easy for most people, but for bookkeepers who are mostly into routines, this sure breaks our beginning of the year routines. Unless a bookkeeper just doesn’t really care and thinks that they will deal with it later if it should come up. I’m sure you know -- I just can’t do that.  I need to know.  I need to know now! 

**And now, for this episode’s tax tip** If you have inherited an IRA in 2025 from a spouse, you are allowed to roll that over into your own IRA and then you would follow the regular minimum distribution law.  If you inherit an IRA from a non-spouse, then there is a 10-year rule – that is--  that you have to empty that inherited IRA 10 years after you inherit it.  You can withdraw that money annually, pay tax on it, and then reinvest it in a traditional IRA but not a Roth IRA, depending on your tax situation. Now, back to the episode*** 

If you are a bookkeeper or a business owner listening to me right now, drop me an email as to what you are planning on doing this coming January with 1099’s.  

 I’m wondering if I should just say to all of the tax preparers who I work with that I will send the 1099 reports, and YOU can take care of these yourself.  It’s going to be unpredictable, complicated and anxiety provoking for me, I fear. I would think that all the tax software, like Lacerte and Drake, for two examples, would have to be programmed before taxes are allowed to be filed this January. So, eventually all the tax preparers who use software to file with the IRS will know these new rules, at least, interpreted by the software companies. January will be a roller coaster ride for accounting professionals and bookkeepers alike. Help!  

Another Bookkeepers Therapy appointment is in my near future, I sense. Where’s that phone number?   Maybe it’s under the paperwork for the shredders, or the bill from the office cleaners, or 6 inches of bank statements on my desk that have to be entered in QuickBooks ASAP.  Maybe it’s under the invoice from my subcontractor?  Under the coffee pot?  What’s it doing THERE?  Can I just sleep until May 1st of 2026? Please? Let’s call it an ‘induced tax season coma’.  No… I guess all of my clients would fire me. I guess I’m stuck with my Jan anxiety in October. Be in your ear in November, hopefully. 

 I’m Paul Rosenblum