Does Zelle Report to the IRS?

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The IRS proposed a rule in 2021 as part of the American Rescue Plan requiring third-party network transactions to note and report all payments greater than $600 sent through their networks. This means apps like Venmo, PayPal and Cash App would need to report these transactions to the IRS and send business account users a 1099-K form.

And while this requirement is being phased in over time, you might be wondering if Zelle reports your transactions to the IRS.

Read on to learn about these new reporting requirements and how they affect payments received through Zelle.

Does Zelle Report to the IRS?

No, Zelle does not report any payments you receive (personal or business) to the IRS. The IRS requirement to report business payments through third-party apps does not apply to Zelle. This is because Zelle sends payments directly between bank accounts — and does not hold onto the money the same way apps like Venmo or Cash App do. Zelle is simply a bridge service that makes it easy to transfer funds from one bank to another.

How Zelle Complies with IRS Regulations

Zelle is a third-party transfer service developed by a consortium of large U.S. banks. Because Zelle is not a bank account itself — and does not hold any client’s funds — it is not subject to IRS reporting requirements. Zelle is simply a service available through banks and credit unions that allows you to transfer funds from one account to another.

Does Zelle Report to the IRS for Personal Use?

If you’re using Zelle for personal payment transfers — such as paying a friend back for picking up the restaurant bill — these transactions are not taxable and Zelle does not report them to the IRS. If you’re a business owner using Zelle to receive payments from clients, Zelle will not report your business income, but you are responsible for reporting that income to the IRS through your tax return. 

What Do You Have To Report To the IRS?

You may be surprised to learn what the IRS considers income in addition to wages, commissions and tips earned through a job with an employer. If you barter your services — like trading babysitting services in exchange for house cleaning — or have student loans forgiven, you may need to report them as income on your tax return. You also need to report unemployment benefits.

The following sources can be considered income, according to the IRS:

• Bonuses
• Found money
• Lawsuit damages
• Prizes
• Royalty payments

Thresholds for Reporting Transactions

If you’re a business owner receiving payments for products or services, you are required to report any and all income earned from your business activities. There is no threshold for reporting your business income as a business owner but third-party payment apps that receive and store your payments may be subject to a lower payment reporting threshold soon.

If you receive payments through a third-party payment provider that stores your funds — like Venmo or PayPal— those companies are now subject to a threshold of $5,000 in payments received as of 2024. Once that threshold is met through one of those apps, they will be required to send you a 1099-K form and report your transactions to the IRS.

Zelle is not one of these apps and is not required to send you a 1099-K at this time.

Potential Penalties for Non-Reporting

While Zelle doesn’t report your business income to the IRS, you are 100% responsible for reporting it accurately. If you fail to report your income properly to the IRS, you may receive very large penalties and fees from the IRS — and in extreme cases — your property could be seized, and you could be subject to jail time. Underreporting or non-reporting of any income to the IRS is against the law.

Does Zelle Count as Income?

The answer varies. The money you receive through Zelle can be income if it’s in exchange for a service you provide or property you sell for a profit. The money you receive for cleaning houses, preparing taxes, creating websites and more is income. If you sell the clothing your child outgrew to a friend or set up a stand at the farmer’s market to sell your artwork and receive payments through Zelle, you’re technically generating income if you earn a profit on the sale.

When your friend reimburses you for movie tickets or their share of the dinner tab through a Zelle payment, you don’t need to claim the money as income. You also don’t need to view money received as a gift for a birthday, anniversary or life event as income. A tax professional can help you determine what counts as income and advise you on how to report it.

Tips for Using Zelle and Staying Compliant

If you are a Zelle user for your business, it’s important to keep your own accurate recording of any business transactions. You must report any and all business income to the IRS in your tax return — even if Zelle doesn’t send you any tax forms. Understanding Zelle tax reporting requirements can help you ensure that you remain compliant and avoid penalties.

To stay compliant, it’s a good idea to use a third-party accounting software to keep track of all your business income and expenses. Software like Quickbooks or Wave can sync your bank account transactions and properly account for any business transactions through Zelle.

And if you don’t feel confident handling your taxes or accounting, it can be a good idea to hire a licensed professional to help. Working with a CPA or Enrolled Agent can help you stay compliant with the IRS, and may even save you money on your business taxes.

What Is Form 1099-K?

Form 1099-K is an IRS form first introduced in 2011 and is used to report payments from third-party network transactions like Venmo and PayPal. Before the changes made through the American Rescue Plan, third-party payment networks completed the form for customers who received aggregate payments exceeding $20,000 and 200 transactions in a year.

The new law eliminated the 200 transaction threshold and now requires a form for each customer who receives a payment greater than a certain threshold. As of 2024, the threshold for payments received is $5,000, but the IRS will ultimately lower the threshold in the future to $600.

Final Take: Should You Be Using Zelle?

Whether or not Zelle is the right third-party payment platform for you depends on several factors. First, find out if your bank accepts Zelle payments and which platforms your friends and customers are already using. Then examine the system’s features to determine how they measure up to your needs.

Zelle won’t report your receipts to the IRS, but that shouldn’t be a factor in your decision. The IRS expects you to report your income no matter how you get paid for your work.

Allison Hache contributed to the reporting for this article.

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