How Does Cash App Taxes Work for Reporting Income?

Cash App is widely used for sending and receiving money, but many users are unclear about how transactions on the platform impact their taxes. If you earn income through Cash App—whether from selling goods, providing services, or other sources—you may need to report it to the IRS. Failing to do so could lead to penalties or unexpected tax liabilities.

Key Reporting Threshold

The IRS requires third-party payment platforms like Cash App to report transactions that exceed certain thresholds. As of 2024, Cash App must report payments for goods and services totaling $600 or more in a calendar year. This change, introduced by the American Rescue Plan Act of 2021, significantly lowered the previous threshold of $20,000 and 200 transactions. As a result, more users may receive tax forms from Cash App, even with only a few transactions.

Cash App issues Form 1099-K to users who meet the reporting threshold, detailing the total amount received from business-related payments. However, receiving a 1099-K does not automatically mean taxes are owed. The IRS requires all taxable income to be reported, even if no tax form is issued. This means earnings below $600 may still need to be reported.

Types of Taxable Transactions

Not all money received through Cash App is taxable. The IRS focuses on payments related to business activities, such as selling products or providing services. Personal transactions—like splitting a dinner bill or receiving a gift—are not taxable. Distinguishing between taxable and non-taxable transactions is essential for accurate reporting.

Payments for Goods

If you sell items through Cash App, whether occasionally or as a business, the income is generally taxable. This applies to both physical and digital goods, including handmade crafts, clothing, electronics, and e-books.

For those selling personal items, tax treatment depends on whether the sale resulted in a profit. Selling a used item for less than its original purchase price is not taxable. However, if you sell something for more than you paid, the profit is subject to capital gains tax. For example, if you buy a collectible for $200 and later sell it for $500, the $300 gain must be reported. Short-term capital gains (for items held less than a year) are taxed at ordinary income rates, while long-term gains (held over a year) are taxed at rates ranging from 0% to 20%, depending on income level.

Income from Services

Payments received for services through Cash App—whether from freelancing, consulting, tutoring, or gig work—are taxable. The IRS requires all self-employment income to be reported, even if no 1099-K is issued.

Self-employed individuals must also pay self-employment tax, which covers Social Security and Medicare contributions. As of 2024, the self-employment tax rate is 15.3% on net earnings up to $168,600, with a 2.9% Medicare tax applied to earnings above that threshold. Business-related expenses, such as supplies, software, or home office costs, can be deducted to reduce taxable income. Keeping detailed records of income and expenses is essential.

Other Revenue Sources

Cash App transactions may also include taxable income from rental payments, royalties, or investment earnings. Rental income must be reported, even if the property is rented informally. However, expenses like maintenance, property taxes, and mortgage interest may be deductible.

Royalties from intellectual property, such as book sales, music streaming, or licensing agreements, are taxable and typically reported on Schedule E of Form 1040. Additionally, investment-related payments, such as dividends or interest, must be reported. Users who invest through Cash App Investing should be aware that capital gains and dividend income are taxable.

IRS Forms and Documentation

Proper documentation is necessary for accurate tax reporting. The IRS uses various forms to track payments, and understanding which ones apply can prevent discrepancies that might trigger audits or penalties.

For self-employment income earned through Cash App, Schedule C (Profit or Loss from Business) is required to report earnings and deductible expenses. This form calculates net income, which is then transferred to Form 1040. Those with substantial earnings may need to make estimated quarterly tax payments using Form 1040-ES to avoid underpayment penalties.

Some users may receive Form 1099-NEC if they are paid $600 or more for freelance work or independent contracting. Unlike 1099-K, which reports payment processing totals, 1099-NEC is issued directly by clients or businesses that hire independent workers. Taxpayers must ensure all forms are accounted for when filing to prevent mismatches between IRS records and reported income.

The IRS requires taxpayers to maintain supporting documents for at least three years in case of an audit. Bank statements, Cash App transaction histories, invoices, and receipts serve as evidence of income and expenses. Digital tools like accounting software or spreadsheets can help track earnings and deductions, simplifying tax filing. If expenses are deducted, proof of business-related purchases must be retained, as the IRS may disallow deductions without proper documentation.

Distinguishing Business From Personal Activity

Determining whether a Cash App transaction is business-related or personal carries tax implications. The IRS evaluates factors such as transaction frequency, intent, and profit-seeking activities. Selling personal items occasionally at a loss is not considered a business, but consistently reselling goods for profit may classify someone as a sole proprietor. Misclassifying transactions can lead to underreported income or improper deductions, increasing the risk of an audit.

A key factor is whether the activity demonstrates continuity and regularity. The IRS considers an operation conducted with the intent of generating income on an ongoing basis as a business rather than a hobby. This distinction affects tax treatment, as business losses may be deductible against other income, while hobby losses cannot offset taxable earnings. The IRS applies the “hobby loss rule” under Section 183 of the Internal Revenue Code, limiting deductions to the amount of income generated unless a genuine profit motive is proven.

Using a separate Cash App account for business transactions can help avoid mixing personal and professional funds, simplifying tax reporting. While Cash App does not offer traditional business banking features, users can categorize transactions and maintain distinct records. This separation is especially important for those deducting expenses, as the IRS requires clear documentation to substantiate business-related costs. Without proper separation, personal expenditures may be mistakenly claimed as deductions, increasing the likelihood of an audit. A separate account also provides a clear record of earnings, essential for accurate quarterly tax estimates and end-of-year filings.

Maintaining Accurate Records

Proper recordkeeping ensures compliance with IRS regulations and simplifies tax preparation. Without organized documentation, tracking earnings, expenses, and deductions becomes difficult, increasing the risk of errors or underreporting. The IRS requires taxpayers to maintain records that substantiate income and deductions, and failure to do so can lead to audits or penalties.

Digital tools such as accounting software, spreadsheets, or Cash App’s transaction history can help maintain detailed records. Each taxable payment should be documented with relevant details, including the date, payer, amount, and purpose of the transaction. For those deducting business expenses, receipts and invoices should be retained to justify claims. The IRS generally recommends keeping financial records for at least three years, though in cases of substantial underreporting, it can audit up to six years back.

Maintaining a clear and consistent recordkeeping system not only ensures compliance but also provides a clearer picture of financial performance, which can be useful for budgeting and business planning.