Tax laws change often, and one of the most talked-about updates in recent years is the “$600 tax rule.” Whether you’re a freelancer, small business owner, or simply someone using payment apps like Venmo, PayPal, or Cash App, understanding this rule is key to filing correctly and avoiding IRS headaches.
In this guide, we’ll break down what the $600 rule means, how it’s being phased in, and what you can do to stay compliant.
The Origin of the $600 Rule
The $600 reporting threshold came from the American Rescue Plan Act of 2021. Prior to the law, payment apps were only required to report users who:
- Earned over $20,000 in payments and
- Had 200+ transactions in a single tax year
This meant thousands of side hustlers, gig workers, and small businesses flew under the IRS’s radar. The $600 rule dramatically lowered the threshold, ensuring that even a single large transaction could trigger a 1099-K form from payment platforms.
Implementation Timeline
While the law passed in 2021, the IRS has delayed and phased in the change to give businesses and taxpayers time to adjust:
- 2023: The IRS postponed the rollout after widespread confusion.
- 2024: A temporary threshold of $5,000 is being used.
- 2025 onward: The full $600 threshold is expected to take effect.
This means if you’re earning through apps or side gigs, the way you report income is going to look very different starting in the next tax season.
What Counts as Taxable Income?
It’s important to note that not all payments are taxable. Here’s how the IRS draws the line:
✅ Taxable Income
- Payments for freelance work (graphic design, rideshare driving, tutoring, etc.)
- Sales of goods or services (online shops, marketplace sales)
- Business transactions through apps
❌ Not Taxable Income
- Personal payments (splitting rent, paying back a friend for dinner, birthday gifts)
- Transfers between your own bank accounts
- Reimbursements for shared expenses
If you receive a 1099-K for a transaction that wasn’t business income, you’ll need to document it properly when filing your return.
Why It Matters for San Bernardino Residents
San Bernardino has a thriving community of freelancers, independent contractors, and small business owners. From rideshare drivers to online sellers, many rely on apps to accept payments. The $600 rule means the IRS will now have greater visibility into this income.
Without proper tax preparation, residents risk:
- Reporting mistakes that trigger IRS audits
- Overpaying by not claiming eligible deductions
- Penalties for underreporting income
How Professional Tax Services Can Help
Understanding new rules is only half the battle — correctly applying them to your tax situation is where mistakes often happen. Working with a professional ensures compliance while maximizing deductions.
At A&C Tax and Business Services, we help San Bernardino residents navigate complex tax laws with ease. Our licensed experts stay current on every IRS update, so you don’t have to stress over new reporting thresholds.
Whether you’re a freelancer or a small business, our tax preparation services ensure you get accurate returns, personalized strategies, and guidance that saves both time and money.
Common Questions About the $600 Rule
Will I owe more taxes because of this rule?
No, the rule doesn’t create new taxes. It simply increases IRS visibility. You’ve always been required to report business income, even if you didn’t receive a 1099-K.
Do I need to keep records?
Yes. Keep detailed records of all business transactions and separate them from personal transfers. Documentation protects you if the IRS questions your income.
What happens if I ignore a 1099-K?
Ignoring it could trigger an audit or penalty. It’s always better to report income properly and clarify if a 1099-K reflects personal transactions.
The Bottom Line
The $600 tax rule represents a big shift in how the IRS tracks income from apps and side gigs. While it may sound overwhelming, preparation and proper guidance can make it manageable.
By working with trusted professionals like A&C Tax and Business Services, San Bernardino residents can stay ahead of these changes, file with confidence, and avoid costly mistakes.
