When Splitting the Bill Could Trigger a Tax Form: What to Know About Cash Apps and the IRS

These days, it’s second nature to split a dinner bill or reimburse a family member using digital payment apps like Venmo, PayPal, or Cash App. While convenient, these transactions can lead to unintended tax consequences — even when the payments have nothing to do with business.

After a night out in Green Bay, it might seem harmless to have one person cover the tab while the others Venmo their share. Or perhaps your adult child pays you back through a cash app after you front the cost of new clothes. These casual paybacks could trigger a tax form you weren’t expecting: Form 1099-K.

What Is Form 1099-K — And Why Should You Care?

Form 1099-K is issued by payment platforms to report transactions classified as payments for goods or services. When someone sends you money, the app often asks if the payment is for “friends and family” or for “business.” If that payment is accidentally tagged as a business transaction, and you exceed annual reporting thresholds, a 1099-K will be issued — and the IRS will expect to see that income reported on your return.

Here are the current thresholds for reporting:

• $5,000 in 2024

• $2,500 in 2025

• $600 in 2026 and beyond

At our De Pere office, we’re seeing more clients surprised by these forms — and the stress they bring during tax season.

Avoiding Mistakes with Cash Apps

To minimize your risk, make sure any reimbursements or non-business payments are clearly marked as “friends and family” in the app. This signals the platform not to report the transaction as income.

If you’re the one receiving the money, it’s a good idea to keep a note of:

• Who sent it

• What it was for

• That it wasn’t related to any sale or service

This simple habit can protect you from confusion later when filing your taxes. And if you do receive a 1099-K in error, you’ll have the documentation needed to challenge it.

Digital payment platforms must send these forms by January 31 each year, so if there’s a mistake, the window to correct it before filing is short. That’s why it’s important to address the classification of these payments in real time — not after the fact.

Tax Prep Headaches & Fraud Risks

Beyond accidental misclassification, there’s another issue to watch for: fraudulent activity. Scammers often target peer-to-peer payment platforms because of their speed and limited protections. One common scheme involves phishing messages or spoofed requests for payment that look like they’re from someone you know. Once you send the money, it’s difficult to reverse the charge.

There are also cases where scammers sell items online and request payment through a cash app, only to disappear without delivering the product. If you’re using these apps for anything remotely business-like, make sure the transaction is legitimate and documented.

At Millhouse Accounting in De Pere, we recommend that clients always double-check who they’re sending money to — and never share their account credentials. We also urge caution during tax preparation season when scammers often impersonate IRS agents demanding payment through apps (which the IRS never does).

What to Do If You Get an Incorrect 1099-K

If you receive a Form 1099-K and the income listed doesn’t belong on your return (for example, it’s a reimbursement), your first step is to contact the payment platform and request a correction. This process can be slow, and unfortunately, the burden is on you to prove the income isn’t taxable.

The IRS FAQs on Form 1099-K and the Taxpayer Advocate Service can offer guidance if the payment app is unresponsive. But the best defense is prevention — getting the classification right at the time of payment avoids a lot of hassle later.

Final Thoughts

As the IRS continues expanding third-party reporting to improve compliance, more people are getting caught up in tax issues they didn’t even know existed. A casual dinner split in Green Bay shouldn’t lead to tax stress — but without care, it might.

Have questions about digital payments or how to avoid 1099-K surprises? Contact our team at Millhouse Accounting in De Pere. We’re here to help you stay informed, stay compliant, and make tax preparation as smooth as possible.

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