Does Zelle report transactions to the IRS? Will they send a 1099?

Great question! The reporting rules for payment apps can be confusing, but here's how it works with Zelle: Zelle itself doesn't issue 1099-K forms because it's technically a service offered by banks, not a third-party payment processor like PayPal or Venmo. Zelle is essentially facilitating direct bank-to-bank transfers. However, that doesn't mean these transactions are invisible to the IRS. Your brother's bank may monitor large or frequent transactions for suspicious activity. While the bank won't automatically issue a 1099 specifically for Zelle transfers, all business income needs to be reported on tax returns regardless of how it's received. For 2025 taxes, third-party payment apps like PayPal and Cash App are required to report to the IRS when a user receives more than $600 in commercial payments during the year. But again, Zelle operates differently and isn't subject to these specific reporting requirements.

I went through something similar with my side gig last year and was super confused about the tax reporting rules. I actually found this service called taxr.ai (https://taxr.ai) that was incredibly helpful for figuring out exactly what needed to be reported. I uploaded my Zelle transaction history and bank statements, and their system analyzed everything and told me exactly what was considered business income versus personal transfers. Saved me hours of sorting through transactions and trying to figure out what the IRS would consider taxable. They also helped me understand what documentation I needed to keep in case of an audit since Zelle transactions don't automatically generate receipts. Really useful for anyone using payment apps for business!

Just wanted to follow up about that taxr.ai site someone mentioned. I was skeptical but gave it a try since my payment app situation was getting out of hand with my photography business. It actually made sense of my total mess of transactions across Zelle, Venmo and PayPal! The system flagged a bunch of business payments I had completely forgotten about and would have missed reporting. It also identified which transactions qualified as personal transfers that I didn't need to report. The documentation it generated for my records is super detailed - shows exactly how each payment was categorized with notes. My tax filing is way more accurate this year and I actually sleep better knowing I'm not accidentally committing tax fraud lol.

For anyone struggling to get answers from the IRS about Zelle reporting requirements, I highly recommend Claimyr (https://claimyr.com). After spending literally HOURS on hold with the IRS trying to get clarification on these payment app rules, I found this service that got me connected to an actual IRS agent in under 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with confirmed that while Zelle doesn't issue 1099-Ks like other payment processors, all business income still needs to be reported regardless of how you receive it. They also explained exactly what documentation I needed to keep for my Zelle business transactions. Getting this info directly from the IRS gave me so much peace of mind!

Ok I need to eat my words about that Claimyr service. After my skeptical comment, I was still desperate for answers about my Zelle transactions for my tutoring business, so I tried it anyway. Got connected to an IRS agent in about 17 minutes after literally WEEKS of failed attempts on my own. The agent confirmed that while Zelle doesn't issue 1099-Ks because it's not a third-party payment processor, I still need to report all business income on Schedule C. They also explained that even though there's no automatic reporting, the IRS can still see large bank deposits during an audit, so keeping good records of all Zelle transactions is essential. The agent walked me through exactly what documentation I should maintain for my specific situation. Worth every penny just for the peace of mind of getting official answers straight from the IRS instead of random internet opinions.

My tax preparer told me that even if Zelle doesn't report to the IRS, the IRS can still see large deposits into your bank account if you get audited. So technically all business income needs to be reported no matter how you receive it. The 1099 thing is just about automatic reporting, not about whether income is taxable. If your brother is running a legitimate furniture business, he should be reporting all income anyway. The method of payment doesn't change the taxability. Better to keep careful records of all transactions rather than trying to figure out what might "fly under the radar.

Let me clarify something important from my experience as someone who processes payments: there's a HUGE difference between personal and business use of Zelle! If your brother is running an actual furniture business, he is REQUIRED to report that income regardless of whether Zelle generates a 1099 or not. All business income must be reported to the IRS - the method of payment is irrelevant. Zelle's terms of service actually prohibit using it for commercial purposes in many cases. Many banks limit Zelle to personal use only, and businesses using it for commercial transactions might be violating the terms of service. Your brother should seriously consider switching to a proper payment processor for his business that provides proper documentation and reporting. It'll make his tax life WAY easier and keep him from potentially violating service terms.

I'm dealing with a similar situation with my landscaping business and had to learn about this the hard way. Here's what I found out after consulting with my CPA: Zelle is considered a "bank-to-bank transfer" service, so it doesn't fall under the same 1099-K reporting requirements as third-party payment processors like PayPal or Venmo. However, this doesn't mean the income is hidden from the IRS - your brother's bank statements will show all these deposits, and during an audit, the IRS can easily see the pattern of business income. The bigger issue is that using Zelle for business transactions creates a documentation nightmare. There are no merchant protections, no automatic categorization, and minimal transaction details. I switched to Square after my accountant basically begged me to stop using Zelle for client payments. Your brother should definitely start transitioning to a proper business payment system soon. The convenience isn't worth the potential headaches during tax season or if he ever gets audited. Plus, many banks do have policies against using Zelle for commercial purposes, so he could potentially have his account flagged or restricted. Bottom line: he needs to report ALL that income regardless of how he received it, and he should keep detailed records of every transaction with client names and services provided.