If you’ve ever received payments through a payment processing, resale, or marketplace platform like PayPal, Stubhub, EBay, Cash App, Venmo, or Etsy, you may have received or at least heard about the IRS 1099-K form and its reporting requirement changes. A few years ago, Congress and the IRS made some big changes to how and when these forms are issued, but the implementation of these changes has been delayed (multiple times) – until now, that is. Whether you’re a freelancer, small business owner, or just someone selling a few things online – these rules could impact you. So, I wanted to provide a breakdown of what a 1099-K Form is, the income threshold rule changes, and who it could impact.
What is a 1099-K Form?
A 1099-K form is a tax form that payment processors (like PayPal or Venmo) use to report payments you receive for goods or services. The IRS wants to ensure that online sellers (marketplace or e-commerce, among them), freelancers, and side hustlers receiving income from payment platforms report that income in their tax filings.
Prior to the rule change, payment processors were only required to send a 1099-K form to individuals that had more than $20,000 in payments and more than 200 transactions in a year. With the IRS’s new rules, that threshold drops dramatically, meaning a lot more people will be receiving these forms – not just small business owners and high-volume sellers. I’ll cover the revised 1099-K form thresholds in detail below.
What Types of Transactions are Reported on 1099-K Forms?
1099-K forms should report the following types of transactions as payments received for goods or services:
- Credit, debit or stored value cards such as gift cards (payment cards)
- Payment on apps or online marketplaces, also called third party settlement organizations or TPSOs
What Types of Transactions Should Not be Reported on 1099- Forms?
Money that you receive from friends and family as a gift or repayment for a personal expense should not be reported on 1099-K forms, as these payments are not considered to be taxable income. This may include gifts, money received for shared bills, etc.
If your 1099-K form does include some of these types of non-business payments, note them as such in the app, or contact the 1099-K form issuer immediately so that they can send a corrected form. Whether you get a corrected form in time or not, you’re still expected to report the income.
The New 1099-K Form Thresholds
Originally, the American Rescue Plan Act (oddly enough) in 2021 changed the law so that starting in 2023 (for the 2022 tax year), individuals that earned $600 or more in payments for goods and services would begin receiving a 1099-K form from payment processors. These changes were meant to be part of a broader effort to improve tax compliance, especially as the gig economy continues to grow. However, they received a lot of industry push-back, and the IRS has delayed the new reporting threshold multiple times.
Last revised by the IRS last in November, 2024, the new 1099-K Form reporting thresholds are:
- 2024: $5,000 threshold for 2024 1099-Ks sent out in 2025
- 2025: $2,500 threshold for 2025 1099-Ks sent out in 2026
- 2026 and after: $600 threshold for for 2026 1099-Ks sent out in 2027 (and subsequent years)
What Does a 1099-K Form Mean for Tax Filing?
Getting a 1099-K doesn’t necessarily mean you owe taxes on all of the income that it reports. For example, if you’re selling personal items or goods at a loss, you might not owe any taxes. But, if you’re running a business or earning income from services, then yes, you’ll need to report that income to the IRS.
You may even receive a 1099-K form if your income is below the income thresholds noted. The thresholds are really just a requirement minimum for the processor to send a form – they can report income below that if they choose.
Note that you can deduct expenses related to your business income (e.g. what you paid for the item or materials, shipping fees, seller fees, or other cost of business). Make sure you track your expenses and receipts so you don’t end up paying more in taxes than you truly owe.
Importantly, whether or not you receive a Form 1099-K, you must still report any income on your tax return. If a payment processor didn’t send you a 1099-K form, that does not mean you are off the hook for business income received. The new thresholds are really just compliance/guidance for the payment processors – not for taxpayers.
