“Can I pay with my phone?” This question is routinely asked by Americans who use peer-to-peer (“P2P”) payments for both personal and business transactions. Over half of U.S consumers regularly used P2P payment applications for personal payments in 2023, and this year, 60% are using them to pay bills. A Case Study for a Digital Finance Standard, Peer-to-Peer Payment Apps, CONSUMER REPORTS (Jan. 2023); 60% of US Consumers Use P2P Apps to Pay Bills, PYMNTS (Jan. 2025).
Estate planners and tax advisors must understand the tax and reporting rules for clients using P2P payment applications for business transactions and family transfers. This article examines how major P2P payment platforms operate and report transactions, explores recent IRS rules aimed at addressing unreported business income, and discusses the gift and estate tax implications of family transfers made through these applications.
Understanding the Function and Reporting Practices of P2P Payment Applications
A P2P payment exchange allows users to send and receive money digitally through websites or applications, bypassing traditional payment methods like cash or checks. Popular P2P platforms include PayPal, Venmo, Cash App, Zelle, and Apple Cash. Businesses of all sizes now accept P2P payments both in-store and online. As digital payments evolve, each platform offers distinct features, which affect its tax reporting protocol.
PayPal, one of the oldest and most widely used P2P payment platforms, also owns Venmo. PayPal operates as an online payment system, allowing users to send and receive money internationally by linking a credit card, debit card, or bank account. What is PayPal and How Does it Work?, Paypal.com (Mar. 2025). Venmo functions similarly, but enhances the experience with a social component, enabling users to quickly send and receive payments while also sharing transaction details with friends through a social feed. It is particularly popular among Millennials and Gen Z for splitting bills and informal transactions. Both companies track all payments made using business accounts and those payments made via personal accounts for “goods and services” and report this information to users and the IRS. To comply with the Federal laws outlined in the next section, the platforms collect user identification information and may place holds on accounts until users provide required details.
Apple Pay, another major platform, functions as a digital wallet for secure, contactless payments in stores and online using Apple devices. Apple Pay, an easier way to pay within apps and websites, APPLE (Mar. 2025). Its P2P payment feature is known as Apple Cash. Cash App is another mobile payment service that operates primarily in the U.S. and U.K., offering money transfers, storage, and additional banking and credit features. Cashapp.com (Mar. 2025). Like Paypal and Venmo, Apple Pay and CashApp report users’ business income to those users and to the IRS, but Apple Cash does no such reporting because it is not intended for business use.
Zelle stands apart from the other payment applications because it is not required to report user transactions to the IRS. Guardado, Jocelyn, Understanding Zelle Taxes: What Makes It Different From Other Apps? PAYMENT CLOUD (Feb. 2025). This exemption exists because Zelle does not hold funds; it simply transfers money directly between bank accounts. As a result, business owners and others using Zelle for goods and services must track their own income and report it on their income tax returns.
Evolving IRS Reporting Rules
As P2P payment applications expand, the IRS is lowering Form 1099-K reporting thresholds, requiring platforms to issue these forms to more users. Previously limited to high-volume sellers, these rules now affect a broader range of individuals, including casual users receiving payments for goods and services. This shift aims to enhance oversight and address unreported income.
Form 1099-K, Payment Card and Third Party Network Transactions, is issued by P2P payment platforms (referred to by the IRS as “third-party settlement organizations” or “TPSOs”) to both the IRS and users whose receipts exceed the threshold in a given year ($2,500 in 2025). However, payments between family and friends are excluded from this requirement. The form must include the user’s name, address, and Taxpayer Identification Number (TIN), as well as the gross amount of reportable transactions. IRC § 6050W(a). The "gross amount" refers to the total of all reportable transactions without any adjustments for refunds, credits, discounts, or fees. IRC § 1.6050W-1(a)(6). P2P platforms must provide Form 1099-K to users by January 31st and file it with the IRS by February 28th, or March 31st if filing electronically. IRC § 6050W(f); § 1.6050W-1(g).
Originally, under the Housing Assistance Tax Act of 2008, P2P payment companies only reported transactions if a user received more than $20,000 and engaged in over 200 transactions in a year. However, the American Rescue Plan Act of 2021 significantly reduced the 1099-K reporting threshold to $600, regardless of the number of transactions. The IRS is phasing in this revised rule, setting the threshold at $5,000 for 2024, $2,500 for 2025, and $600 for 2026. See IRS Notice 2023-74, Revised Timeline Regarding Implementation of Amended Section 6050W(e). The decrease followed a 2021 Federal audit, which found that 169,711 taxpayers potentially failed to report up to $29 billion in payments received for goods and services. The Internal Revenue Service Faces Challenges in Addressing the Growth of Peer-to-Peer Payment Application Use, TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION Rep. 2021-30-022 (Apr. 2021).
Despite these changes, P2P payment users are still required to report all business income on their tax returns, whether or not they receive a Form 1099-K. To ensure compliance, users receiving business income through P2P payment platforms must maintain accurate accounting records to verify amounts reported to the IRS. See Treas. Reg. § 1.6001-1(a); IRS Form 1099-K FAQs. Additionally, keeping personal and business accounts separate is crucial to avoid commingling funds and prevent errors in reporting. Treas. Reg. § 1.446-1(a)(4). As P2P payment platforms evolve, estate and tax professionals must stay up to date about changing reporting thresholds and IRS enforcement efforts.
Gift and Estate Tax Considerations for P2P Payment Application Users
The IRS has not taken public steps to monitor or tax P2P exchanges between family and friends. However, since high-income adults are more likely to use these platforms, estate planners and administrators should consider how these transactions fit into clients’ plans for family gifting and estate planning. See Payment apps like Venmo and Cash App bring convenience – and security concerns – to some users, Pew Research Center (Sept. 2022).
P2P payment platform users should be mindful of the gift tax rules under the Internal Revenue Code. The IRS permits gifts of up to $19,000 per recipient each year without triggering a gift tax filing requirement. IRC § 2503(b). Transfers exceeding this threshold require the donor to file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, though filing doesn’t necessarily mean tax is owed. Instead, gifts exceeding the annual exclusion reduce the gift giver’s lifetime exemption, which is $13,990,000 in 2025. IRC § 2010(c). Clients who routinely transfer funds to their young adult children via these platforms should be especially aware, as frequent transfers may cumulatively surpass the annual exclusion limit, thereby triggering the reporting requirement.
Practitioners should also not overlook a decedent’s P2P payment application accounts in the administration of an estate. Upon an application user’s death, P2P payment platforms have procedures for transferring a positive account balance to associated bank accounts. Positive account balances are digital assets that are includible in a decedent’s taxable estate and reportable on Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. Treasury Regulations specifically include in a decedent’s taxable estate the "amount of cash belonging to the decedent at the date of his death, whether in his possession or in the possession of another, or deposited with a bank." 26 C.F.R. § 20.2031-5. P2P payment application accounts are generally reportable on Schedule F of Form 706, covering "Other Miscellaneous Property.” However, if the account is linked to a bank account and treated as a cash equivalent, the funds may instead be reported on Schedule C, covering Mortgages, Notes, and Cash.
Key Takeaways
As P2P payment platforms continue to grow in popularity and usage, estate planners and tax professionals must stay current on reporting rules and their impact on clients. Practitioners should advise clients to keep accurate records, separate personal and business transactions, and monitor IRS enforcement efforts. With careful planning, clients can use these platforms effectively for business and family wealth transfers while complying with tax laws.
Reprinted with permission from the April 1, 2025 edition of The Legal Intelligencer © 2025 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or reprints@alm.com.