In the wake of large IRS budget cuts and the significant loss of its workforce, is the agency turning into a paper tiger?

Since President Trump began his second term in office, IRS funding has declined precipitously, and there has been a sharp drop in personnel. Congress set the IRS's fiscal year 2026 budget at $11.2 billion, 9% less than the IRS's 2025 fiscal year funding, and House appropriators want to slash it further, to $10.2 billion for 2027. Additionally, the IRS has lost over 20% of its workers since January 2025 through voluntary deferred resignations and layoffs, with even more departures expected this year.

And there's been lots of chaos at the top leadership at the IRS over the past 17 months. The IRS is on its seventh commissioner since January 1, 2025. Scott Bessent, the Treasury Secretary, is also the nominal head of the IRS. But Frank Bisignano oversees all day-to-day operations at the agency. As chief executive officer of the IRS, he essentially acts as the de facto commissioner. Bisignano is doing double duty. He is also the commissioner of the Social Security Administration. Many other high-level officials have also left the IRS.

The IRS's enforcement arm is feeling the brunt of the personnel and funding cuts. Congress has rescinded most of the IRS's $80 billion windfall from 2022's Inflation Reduction Act. And some of the biggest drops in the agency's employee headcount are from its examination and collection groups. The IRS has lost one-in-four of its enforcement workers through voluntary deferred resignations, retirement and layoffs. Many of them were experienced agents and managers with deep knowledge. This lost know-how will be hard to replenish with those employees who remain. And it will only get worse for the IRS. For instance, the Trump administration's fiscal year 2027 budget request for the IRS includes an additional 18% cut in enforcement activities and projects fewer than 25,000 total enforcement employees.

How is the IRS's budget and personnel cuts impacting IRS audits? The overall number of audits is declining. In recent years, the IRS audit rate for individuals was significantly below 1% (for example, the audit rate for 2018 individual returns was 0.3%), and we expect this figure to continue to go down, at least over the next few years.

Many filers are now escaping the audit anvil because of scarcer audit resources. Two prime examples are high-income individuals and partnerships. The number of IRS audits of individuals with $10 million or more of income has fallen from 6,786 in fiscal year 2025 to 2,264 in fiscal year 2026. The number of IRS audits of partnerships has also declined from 3,174 in fiscal year 2025 to 2,932 in fiscal year 2026. The IRS forecasts even further declines in these audits in fiscal year 2027.

AI will help the IRS filter its audit targets

But this does not mean it is a free-for-all for tax cheats. According to leaders at the IRS, there will be fewer overall audits, but the exams that are done will be more targeted.

Data analytics and artificial intelligence use are increasingly the norm in the IRS's enforcement arsenal. Data-mining software can sift through taxpayer data, expose suspicious activity and identify cases for audit. The IRS is relying more than ever on this technology to more precisely identify high-risk noncompliance and to improve efficiency.

We also expect that the IRS will go after low-hanging fruit. One example is refundable credits, such as the earned income credit, American Opportunity credit, the Affordable Care Act's premium tax credit, and the refundable portion of the child tax credit. Most of these audits are done through correspondence, meaning the taxpayer never meets with an IRS employee. They're a bit more cost-effective, since the audit is generally limited to only one or two issues. The IRS also knows that there is lots of money lost each year to erroneous claims of refundable tax credits. The IRS estimated it improperly paid $21.4 billion in refundable credits in fiscal year 2024 alone.

Taxpayers with income-matching discrepancies will also be a prime target of the IRS. The IRS's automated underreporting program matches data on information returns, such as Forms W-2 and 1099, with income amounts reported on individual tax returns. If there is a significant mismatch, the IRS will alert the taxpayer to the issue by sending out a computer-generated CP2000 notice.

High-income nonfilers have been on the list of the IRS's enforcement priorities in recent years, and we expect this trend to continue. The primary emphasis is on individuals who received income in excess of $100,000 but didn't file a tax return.

The IRS will continue to go after abusive tax schemes that it includes on its annual Dirty Dozen tax scams. For 2026, these include:

• Bogus self-employment tax credit promotions
• Overstated withholding
• Abusive noncash charitable contribution schemes, many of them involving the donations of conservation easements
• Refundable tax credits for abusive undistributed long-term capital gains on Form 2439 by investors in real estate investment trusts and mutual funds
• Misleading tax breaks touted on social media: (1) one scheme encourages employees to take the sick and family leave credit, (2) another uses Schedule H, Household Employment Taxes, to seek false refunds, and (3) a third urges filers to claim the fuel tax credit.

There are also audit red flags that could increase the chance of the IRS pulling your return for examination. We'll briefly describe a few of these red flags.

• Taking higher than average deductions. If the deductions, losses, or credits on your return are disproportionately large compared with your income, the IRS may want to take a second look at your return.
• Claiming large charitable deductions. If your charitable deductions are disproportionately large compared with your income, it raises a red flag. Also targeted are conservation easement donations and taxpayers who fail to comply with the substantiation requirements. You can find information on the substantiation rules for charitable donations in IRS Publication 526.  
• Claiming substantial business losses or large deductions on Schedule C.
• Deducting a hobby loss on Schedule C, especially if you have multiple years of losses from the activity and have lots of income from other sources.
• Deducting large rental losses on Schedule C. The IRS is pulling returns of individuals who claim they are real estate professionals and whose W-2 forms or other non-real-estate Schedule C businesses show lots of income.

This first appeared in The Kiplinger Tax Letter. It helps you navigate the complex world of tax by keeping you up-to-date on new and pending changes in tax laws, providing tips to lower your business and personal taxes, and forecasting what the White House and Congress might do with taxes. Get a free issue of The Kiplinger Tax Letter or subscribe.

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For advisory firms with a large client exposure to alternative investments, tax season unearths operational gaps they did not anticipate.

The mad manual scramble for K-1s and amended forms strains operations. For decades, I have seen these pressures disrupt even the most talented teams and force advisers into reactive decision-making that erodes the confidence in accuracy and completeness and affects staffing and client trust.

In practice, investment sophistication often outpaces back-office infrastructure. Even established advisory firms can find themselves unprepared as new funds add layers of complexity that overwhelm legacy workflows.

When operational systems lag behind investment strategy, the strain often surfaces at the most challenging times. To successfully scale alternatives, infrastructure must keep pace with investment strategy; otherwise, firms risk preventable delays and client frustration.

Understanding the operational cost of alternatives

A traditional portfolio built primarily from publicly traded securities generates predictable reporting with few numbers to be considered. Add multiple private funds, each issuing its own Schedule K-1 on its own timeline, and sometimes with amended versions, and the environment changes drastically.

Hundreds of numbers, each with its own tax impact and evaluation needs, can shift the burden from a simple repeatable process to a time-consuming, interpretive mess — sometimes leaving teams number-numb after hours of review. This is where advisers face the cumulative weight of document delays and compressed deadlines.

Ten K-1s across a single client might be manageable. Fifty or 100 can overwhelm a system designed to manually collect from multiple sources, convert PDFs to usable information and manually track in spreadsheets.

Delays become routine. CPAs may wait for documents that arrive in late summer, well beyond the original return due date, while advisers and support staff spend hours interpreting the information therein, often cramming months of coordination into just a few intense weeks.

Furthermore, while operational strain generates zero revenue, it consumes an advisory firm's most valuable resources: Partner time and professional focus.

Even the best investment strategy creates drag if the underlying infrastructure is not built for the reporting demands that follow.

When these administrative demands are underestimated, bottlenecks extend beyond the back office, slowing planning and straining staff capacity. What begins as a minor processing delay, when multiplied across a high-net-worth client base, quickly leads to a difficult tax season that frustrates both advisers and clients.

Identifying vulnerabilities in advisory workflows

Breakdowns usually occur at small, repeatable friction points that compound under pressure. Manual tracking of K-1s, document collection through multiple inboxes or portals and inconsistent handling of amended forms are common pitfalls.

Many advisory firms rely heavily on one or two operations professionals who "own" the process. However, that setup often creates a fragile, person-dependent system. If these individuals are unavailable or overwhelmed during peak season, bottlenecks emerge.

Clients may not see the internal strain, but they experience the effects in delayed filings and unclear communication.

Even when delays originate with fund managers, the advisory firm bears the relationship risk.

Streamlining workflow

The solution is not to reduce exposure to alternatives but to ensure that operational processes scale with portfolio complexity. This means advisers should review the full tax document lifecycle, tracking each step from initial issuance through final client delivery.

Mapping every handoff makes it easier to identify recurring bottlenecks and remove avoidable sources of delay.

Consistency is one of the strongest defenses against disruption. By centralizing document intake and standardizing how amended forms are handled, advisory firms gain visibility and reduce guesswork.

For example, centralized collection, tracking and processing reduces upfront administrative burdens and minimizes the kind of mindless copy-and-pasting that consumes hours without adding value.

Clear ownership and accountability ensure that someone is responsible for monitoring document flow rather than reacting once deadlines loom.

Proactive client communication also changes the conversation. Advisers who alert clients early to potential risks help preserve trust and reduce frustration.

Finally, stress-testing current systems against increased alternative allocations can highlight gaps before they become crises. Conducting a mock run of tax season workflows or simulating higher volumes helps advisory firms uncover weak spots while there is still time to correct them.

Planning staffing and workflow for growing alternative exposure

Alternatives increase administrative demands alongside potential returns. Each additional private investment introduces new reporting complexities, data formats and coordination requirements.

Many advisory firms absorb this workload through extended hours and informal workarounds during the busy season. The system may appear to function but often relies on sustained manual intensity, with teams working nights and weekends to keep up.

Capacity planning should account for structural complexity, not just assets under management. Advisers need to evaluate how many staff hours are spent tracking documents, converting PDFs to Excel and whether high-value professionals are engaged in repetitive, rules-based work.

Protecting staff from burnout is not a soft goal. It is a practical advantage that helps teams to focus on strategic advisory work.

I often advise firms to audit task distribution to identify what can be standardized or delegated. Small adjustments, such as early document requests and shared dashboards, help shift the focus to a high-value client strategy.

Aligning growth with operational readiness

Alternative investments are not inherently disruptive. Misalignment is. When portfolio complexity outpaces the operating model, the strain often appears first in the client experience through unclear requests and compressed deadlines.

Before increasing alternative allocations, advisers should confirm that the firm can run a controlled, trackable document cycle end-to-end.

That requires visibility into document status, clear ownership at each step and a seasonal capacity plan that does not depend on last-minute escalation as a default.

Scaling operations alongside portfolio strategy transforms tax season into a managed, predictable process. Firms that identify bottlenecks early and implement clear handoffs deliver timely updates and fewer frantic requests — this reinforces client trust.

In the same way, it moves teams from document chasing to high-value planning and review, which creates sustainable capacity.

As alternative investments expand, operational readiness becomes the bedrock of growth that protects relationships while helping the firm to scale without burnout.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

If you earn money through a side hustle, run a small business, or get paid through apps like Venmo, PayPal, or Cash App, or sites like eBay, you’ve probably come across a lot of mixed messages about the 1099-K form.

You’re not alone. Over the past couple of tax seasons, many online sellers and freelancers have shared that same uncertainty.

Much of the confusion stemmed from IRS back-and-forth on the 1099-K reporting threshold. That included changed policies and postponed deadlines for implementing an initial “$600 rule,” which left sellers and payment platforms in limbo.

But there’s some good news: Congress recently enacted a rule change designed to simplify things this year.

• Essentially, this latest approach returns to a more familiar and less burdensome framework.
• That shift should alleviate some of the stress for many individuals and businesses confused by more recent tax reporting requirements.

Here’s what you need to know about the latest change to 1099-K rules for your 2025 taxes, starting with a look at what the 1009K is.

Why you're getting a 1099-K

A 1099-K is an IRS tax form that reports payments you received through third-party networks or payment apps. Think of it as a way for the IRS to track income earned from business activities, like online sales or gig work, that is processed through platforms like PayPal, Venmo, or Cash App.

Over the past couple of tax seasons, there has been considerable confusion about when these forms were issued due to adjustments to IRS rules.

• Due to a pandemic-era law, the reporting threshold for Form 1099-K was initially supposed to drop to just $600, meaning payment platforms would have sent millions of tax forms to people with even small amounts of business or casual sales income.
• Since then, thresholds for reporting shifted multiple times, causing many people to receive unexpected 1099-K forms.
• For example, last year, the IRS announced a $5,000 threshold for 2024 taxes as part of a phase-in to implement the $600 reporting threshold.

Although the tax agency was attempting to implement the thresholds in stages, the back-and-forth made tax filing stressful and unclear for many sellers and some payment platforms.

1099-K threshold: What’s new for 2025 taxes?

As of July 4, 2025, the Trump/GOP tax and spending bill, often referred to by Trump as the “big beautiful bill” (BBB), became law. The megabill brings several tax changes.

One that will likely have many cheering is a return to the earlier, higher thresholds for 1099-K reporting from payment apps like (but not limited to) PayPal, Venmo, Cash App, Etsy, StubHub, eBay, and Airbnb.

So, for payments you receive for 2025 (sent to you in early 2026), you should only receive a Form 1099-K if:

• You receive more than $20,000 in gross payments and
• You conduct more than 200 transactions on a single platform within a year.

For most people paid via these third-party processing platforms — from part-time sellers to casual gig workers — this means no more unexpected tax paperwork just for the occasional online sale or side job.

Reinstating the 200/20,000 rule should reduce the paperwork burden on smaller sellers and gig workers while maintaining IRS oversight of higher-volume payment activity. It will eventually help lessen uncertainty.

What to do If you receive a 1099-K

If you get a 1099-K form in the mail, it means the IRS has a record of payments made to you through a third-party platform. Receiving the form doesn’t automatically mean you owe taxes on the full amount shown, though. It's just a report of gross payments received.

You still need to accurately track your expenses and income to determine your taxable profit.

Here are a few more key tips to keep in mind:

Keep thorough records: Save receipts, invoices, and transaction statements related to your sales or services. This documentation is essential for deducting business expenses and verifying your income.

Report all income: Report all your taxable income, whether you receive a 1099-K or not.

Match your records to the 1099-K: Use the form as a helpful cross-check, but don’t assume it’s error-free. Payment platforms sometimes report gross payments without subtracting fees, refunds, or chargebacks.

Consult a tax professional if needed: If your situation is complex or you’re unsure how to handle the form, a tax advisor can help you navigate tax deductions and credits, reporting, and compliance.

Being proactive and organized throughout the year can make tax time less stressful and help you avoid surprises if you do receive a Form 1099-K.

Read More

• 2025-26 Federal Tax Brackets and Income Tax Rates
• New Tax Rules: Income the IRS Won't Touch
• 2026 Income Tax Brackets Are Set: What to Know Now
• Your Smartwatch Habit That Could Trigger a 2026 IRS Audit

If you earn money through a side hustle, run a small business, or get paid through apps like Venmo, PayPal, or Cash App, or sites like eBay, you’ve probably come across a lot of mixed messages about the 1099-K form.

You’re not alone. Over the past couple of tax seasons, many online sellers and freelancers have shared that same uncertainty.

Much of the confusion stemmed from IRS back-and-forth on the 1099-K reporting threshold. That included changed policies and postponed deadlines for implementing an initial “$600 rule,” which left sellers and payment platforms in limbo.

But there’s some good news: Congress recently enacted a rule change designed to simplify things this year.

• Essentially, this latest approach returns to a more familiar and less burdensome framework.
• That shift should alleviate some of the stress for many individuals and businesses confused by more recent tax reporting requirements.

Here’s what you need to know about the latest change to 1099-K rules for your 2025 taxes, starting with a look at what the 1009K is.

What Is a 1099-K?

A 1099-K is an IRS tax form that reports payments you received through third-party networks or payment apps. Think of it as a way for the IRS to track income earned from business activities, like online sales or gig work, that is processed through platforms like PayPal, Venmo, or Cash App.

Over the past couple of tax seasons, there has been considerable confusion about when these forms were issued due to adjustments to IRS rules.

• Due to a pandemic-era law, the reporting threshold for Form 1099-K was initially supposed to drop to just $600, meaning payment platforms would have sent millions of tax forms to people with even small amounts of business or casual sales income.
• Since then, thresholds for reporting shifted multiple times, causing many people to receive unexpected 1099-K forms.
• For example, last year, the IRS announced a $5,000 threshold for 2024 taxes as part of a phase-in to implement the $600 reporting threshold.

Although the tax agency was attempting to implement the thresholds in stages, the back-and-forth made tax filing stressful and unclear for many sellers and some payment platforms.

1099-K threshold: What’s new for 2025?

As of July 4, 2025, the Trump/GOP tax and spending bill, referred to by some as the “big beautiful bill” (BBB), became law. The megabill brings several tax changes.

One that will likely have many cheering is a return to the earlier, higher thresholds for 1099-K reporting from payment apps like (but not limited to) PayPal, Venmo, Cash App, Etsy, StubHub, eBay and Airbnb.

So, for payments you receive for 2025 (sent to you in early 2026), you should only receive a Form 1099-K if:

• You receive more than $20,000 in gross payments and
• You conduct more than 200 transactions on a single platform within a year.

For most people paid via these third-party processing platforms — from part-time sellers to casual gig workers — this means no more unexpected tax paperwork just for the occasional online sale or side job.

Reinstating the 200/20,000 rule should reduce the paperwork burden on smaller sellers and gig workers while maintaining IRS oversight of higher-volume payment activity. It will eventually help lessen uncertainty.

What to do If you receive a 1099-K

If you get a 1099-K form in the mail, it means the IRS has a record of payments made to you through a third-party platform. Receiving the form doesn’t automatically mean you owe taxes on the full amount shown, though. It's just a report of gross payments received.

You still need to accurately track your expenses and income to determine your taxable profit.

Here are a few more key tips to keep in mind:

Keep thorough records: Save receipts, invoices, and transaction statements related to your sales or services. This documentation is essential for deducting business expenses and verifying your income.

Report all income: Report all your taxable income, whether you receive a 1099-K or not.

Match your records to the 1099-K: Use the form as a helpful cross-check, but don’t assume it’s error-free. Payment platforms sometimes report gross payments without subtracting fees, refunds, or chargebacks.

Consult a tax professional if needed: If your situation is complex or you’re unsure how to handle the form, a tax advisor can help you navigate tax deductions and credits, reporting, and compliance.

Being proactive and organized throughout the year can make tax time less stressful and help you avoid surprises if you do receive a Form 1099-K.

Read More

• 2025 Federal Tax Brackets and Income Tax Rates
• New Tax Rules: Income the IRS Won't Touch in 2025
• What's the 2025 Standard Deduction?

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at questions on hobby losses, I bonds and Medicare premiums. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Hobby Loss or Business Loss

Question: I own a dog-breeding business, and for the past few years, I have reported losses from the business on Schedule C of my Form 1040. What are the odds that the IRS will audit my return?

Joy Taylor: The odds of an IRS audit are quite low for most people. In recent years, the IRS has audited significantly less than 1% of all individual tax returns, and we expect that number will remain low for the foreseeable future. However, there are some audit red flags that could increase the chance of drawing unwanted attention from the IRS. One of those is deducting a hobby loss. Filers who report multiple years of big losses on Schedule C of Form 1040, run an activity that sounds like a hobby, and have lots of income from other sources that the losses offset are prime IRS audit targets.

To deduct a Schedule C loss, you must show that the activity is a business. It needs to be conducted with continuity and regularity in a businesslike manner, and you must have a reasonable, good-faith objective of making a profit from it. The IRS’s regulations provide a safe harbor. If your activity generates profit in three out of five consecutive years (or two out of seven years for horse breeding), the law presumes you’re in business to make a profit unless the IRS establishes otherwise. The hobby-business analysis is trickier if you can’t meet the safe harbor. That’s because the determination of whether an activity is properly categorized as a hobby or a business is then based on each taxpayer’s facts and circumstances. The IRS and the courts generally look at the following nine factors (note that no one factor is determinative, but some are routinely given more weight):

• Expertise of the taxpayer and advisers
• Manner in which one carries on the activity
• Time and effort devoted to the venture
• Expectation that assets used in the activity may appreciate
• History of income and losses (the more years of large, consecutive losses, the harder it is to demonstrate a profit motive unless the activity is still in its start-up stage)
• Amount of occasional profits
• Success in carrying on other activities
• Elements of personal pleasure or recreation that one gets from the activity
• Whether the taxpayer has substantial income from other sources, such as wages, other business income, retirement income or investment income

For more information, here is an online story that I wrote on the hobby loss rules

2. I Bonds and College Education

Question: I have owned Series I bonds for many years. I heard that if I cash in the bonds and use the bond proceeds for higher education for my children, then I won’t have to pay tax on the interest when I cash my I bonds in. Is that true?

Joy Taylor: I bond buyers have a choice when they acquire the bonds. They can pay federal income tax each year on the interest earned or defer the tax bill to the end. Most people choose the latter, which is what I assume you did. Thus, you would generally report interest income on your Form 1040 for the year the bonds mature or when they are cashed in, whichever comes first.

One way to avoid paying federal income tax on accrued I bond interest is to cash in the bonds on or before the maturity date and use the proceeds to help pay for college or other higher education expenses for you, your spouse or your dependent. Note that there are lots of hurdles to jump over to be able to take advantage of this tax perk. Here are some of them:

• You must have purchased the bonds after 1989 when you were at least 24 years old.
• The bonds must be in your name only.
• The bonds must be redeemed to pay for undergraduate, graduate or vocational school tuition and fees for you, your spouse, or your dependent (grandparents cannot use this tax break to help pay for their grandchild’s college tuition unless the grandparents can, on their Form 1040, claim the grandkid as a dependent).
• Room and board costs aren’t eligible for the exclusion.
• The exclusion is subject to strict income limits. For 2025, it begins to phase out at modified adjusted gross income (MAGI) of more than $149,250 for joint filers and completely phases out at MAGI of $179,250. For all other filers, the phase-out range for 2025 is $99,500 - $114,500. These figures are adjusted for inflation each year, so they would be higher for 2026 and so forth. MAGI for this purpose starts with the AGI on line 11 of your Form 1040 (figured without taking into account any I-bond interest exclusion). Then you add back any tax breaks from working abroad, the exclusion for employer-provided adoption assistance and any deductions for student loan interest.

If the proceeds from all I bonds cashed in during the year exceed the qualified education expenses that you pay for the year, the amount of I bond interest you can exclude is reduced proportionally. You would use IRS Form 8815 to compute your MAGI and the amount of any I-bond interest exclusion that you would be entitled to.

3. Medicare Premiums and IRMAA

Question: How do I calculate MAGI to determine whether I owe an income-related monthly adjustment amount (IRMAA) on top of my basic monthly Medicare Part B and D premiums? Is the untaxed portion of Social Security benefits added back in for this purpose?

Joy Taylor: True to the complexity of the federal tax code, the definition of MAGI often differs, depending on what it is used for. MAGI for purposes of determining IRMAA for Medicare purposes is your adjusted gross income shown on line 11 of your Form 1040 plus any tax-exempt interest income. As a result, the untaxed portion of your Social Security benefits is not included in MAGI.

If you'd like to learn more, here is a link to an explainer I wrote on modified adjusted gross income (MAGI).

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter and The Kiplinger Letter can ask Joy questions about tax topics. You'll find full details of how to submit questions in The Kiplinger Tax Letter and The Kiplinger Letter. (Subscribe to The Kiplinger Tax Letter or The Kiplinger Letter.)

We have already received many questions from readers on topics related to inherited IRAs, Roth IRA conversions, responding to an IRS tax notice and more. We’ll answer some of these in a future Ask the Editor round-up. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• Ask the Editor: Questions on Trump's Big Beautiful Bill
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• Ask the Editor: Questions on tax deductions and losses
• Ask the Editor: Questions on 529 plans
• Ask the Editor: Questions on amended returns

The Social Security system pays more than just retirement benefits; it is a social insurance policy that gives workers who pay into the system access to disability benefits for themselves and their dependents, as well as survivors' benefits. Any errors in a beneficiary's earnings record could reduce this important financial lifeline when it's needed the most.

Your Social Security earnings record is a detailed account of your reported earnings for each year you’ve worked. It’s used by the Social Security Administration (SSA) to calculate your benefits. And even small errors can significantly impact your future retirement payments; understanding how to check and correct your earnings record is essential.

How to check your earnings record

Your earnings record is built throughout your lifetime and serves as the basis for how much you or your dependents would receive when you apply for benefits.

You can access your earnings records online by creating a my Social Security account on the SSA’s website. You can also request the information via the mail. Submit a Request For Social Security Earning Information (Form 7050-F4) to the address listed on the form. The SSA requests that you give them 120 days to process the request before inquiring about the status of the statement.

The statement lists your earnings by year, summarizes your earnings history and provides an estimate of your future Social Security benefits. You can use the information on your tax returns and W-2 forms to confirm that what you see in your SSA record is correct or needs to be corrected.

Generally, you have only three years, three months, and 15 days from the end of the taxable year in which your wages were paid to correct your earnings record. As in most cases, there are exceptions to this deadline, and they cover most reasons people usually find discrepancies.

Exceptions to the time limit to make corrections:

• Confirm records with tax returns filed with the IRS. If your earnings records don't match the income reported on your tax return, they can be updated to match your 1040
• Correct errors due to employee omissions from incomplete or missing employer reports
• Correct errors "on the face of the record." These are errors that the SSA can find and confirm by examining its records of processed reports
• Include missed wages reported by an employer as paid to a person, but not shown in the SSA records

Why would some of your earnings be missing?

Recent records. If the earnings information that is missing from your Social Security record is for the current year or the previous year, the SSA says you don’t need to worry. It may not have recorded your most recent earnings yet. If you want to verify that last year's amount is correct, you should check back in August 2025, when your 2024 information should be available for review.

Records from more than two years ago. If earnings for earlier years are missing from your record for a few reasons, including:

• Your employer reported your earnings using the wrong name or Social Security number (SSN)
• You got married or divorced and changed your name, but never reported the change to the SSA
• Your employer reported your earnings incorrectly
• You worked using an SSN that didn’t belong to you

Gather these documents to prove your higher earnings

What should you do after you discover some of your earnings are missing? The first thing you should do after finding a mistake is to find proof of those earnings. This proof can include:

• W-2 form (Wage and Tax Statement). You can get a free copy of your W-2 going back to 1978 from the SSA for free if your purpose is Social Security-related. You can also get a transcript or copy of your Form W-2 from the IRS. However, state and local tax information isn't available if you e-filed your tax return. Keep in mind that the IRS will provide wage and income transcript information for only up to 10 years
• Tax returns. If you’re using an individual online account, your tax return and record of account transcripts are only available for the current and three prior tax years. Also, there is a "show all +" expand button below the online tax account transcript type that may provide additional tax years. Generally, tax account transcripts are available for the current year and nine prior tax years unless certain conditions apply. You can get the current tax year and three years prior by filling out the information at the link for Get transcript by mail or by calling 800-908-9946. To access these years and older years of taxes, submit Form 4506-T

• A wage stub or pay slip. You can usually obtain a copy from your employer, either by contacting the payroll or human resources department. If you receive direct deposits, your bank may also be able to provide copies of the deposits.
• Examples of other wage records. Other potential sources of wage records include: timesheets, direct deposit authorization forms, wage garnishment orders, and hiring documents
• Examples of other documents showing you worked. These documents can include: offer letters, employee ID cards, experience letters, and/or employment verification letters

Four steps to correct your earnings record

1. Gather your documentation: Use the list above to collect the documents that can serve as evidence of your earnings. These documents are vital when disputing errors.

2. Contact the Social Security Administration: Once you notice discrepancies, contact the SSA. You can phone them at 1-800-772-1213 or make an appointment to visit your local Social Security office.

3. Submit proof of earnings: Submit copies of your documentation to the SSA to support your claim. The more thorough your evidence, the quicker your correction can be processed.

You may be able to request a correction to your Social Security earnings record online with a my Social Security account, but you can also contact the SSA by phone or submit a Request For Correction of Earnings Record (Form SSA-7008) by mail to correct.

4. Wait for your statement of correction: The correction process can take anywhere from 10 to 90 days after you’ve submitted your request. The complexity of the case and the availability of records will impact the length of the process.

Why it's important to regularly monitor your earnings record

You might think that checking and correcting your earnings record is only important if you’re nearing retirement; that's shortsighted thinking. Ensuring the accuracy of your Social Security earnings record is crucial for maximizing your benefits — all of your benefits: disability, survivors and retirement. Mistakes in your earnings record can lead to lower payouts, so it’s important to catch and correct any errors early.

The SSA advises checking your earnings records in August. By then, the SSA should have received updated earnings data.

Related Content

• Registered Social Security Analyst: The Retirement Professional You Didn’t Know You Needed
• Worried Social Security Benefits Will Be Cut? This Is How Much More You Need to Save to Be Safe
• Average Social Security Claiming Age is Trending Higher

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at five questions on tax deductions and losses. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1: Theft loss

Q. I was a victim of internet fraud and lost a lot of money. Can I claim this loss on my Form 1040?

A. Depending on the circumstances, this might be a deductible theft loss that you can claim on Schedule A of your 1040 if you itemize. A deductible theft loss must be incurred in a transaction entered into for profit or in a trade or business. Personal theft losses not connected with these two factors aren’t deductible through 2025. The analysis is based on facts and circumstances.

The IRS released a legal memorandum in mid-March that can help with this analysis. In the memo, IRS lawyers addressed five scenarios involving common internet scams and ruled whether a victim could deduct a theft loss. In each fact pattern, the victim owned IRAs or taxable accounts and transferred funds from the accounts to the scammer or to new accounts that the scammer controlled. Essentially, individuals who were victims of kidnapping or romance scams can’t deduct their theft losses because they are personal. The result is more favorable for victims of scams in which the scammer convinced them that their existing account was compromised or that they could put funds into an investment with better returns.

You can read the IRS memo [opens PDF]. You can also read more on the subject in IRS Publication 547, Casualties, Disasters and Thefts. Additionally, I would suggest that you consult with a tax professional, such as a CPA, before making any decision as to the deductibility of your loss.
— Joy Taylor, Editor The Kiplinger Tax Letter

2: Leasing a car for business

Q. I am self-employed. I lease a car that I use 80% for business and 20% for personal use. Can I deduct my car lease payments on Schedule C of my Form 1040?

A. Yes. If you lease a vehicle for use in your business, you can opt to use actual expenses to figure your deductible expense. You can deduct the part of each lease payment that is for business. There’s also this oft-forgotten rule: If you lease a car worth more than a certain value ($62,000 in 2025), you must pay income tax for each year of the lease term on an amount shown in IRS tables. The extra income partially offsets the lessee’s tax deduction of the lease payments and is intended to approximate the squeeze on buyers from the cap on depreciation. Note that you don’t add the amounts to your income when filling out your tax return. Instead, you reduce the size of your deduction for the lease payments on the vehicle.

Here’s a simple example.
You’re self-employed and in 2025, you lease a car for use in your business that is valued at $71,000. You must reduce the deduction for the lease payments on Schedule C of your Form 1040 each year by the amount shown in Table 3 of IRS Revenue Procedure 2025-16 [opens PDF]. If you use a leased car in business 80% of the time, you can only deduct 80% of the lease payments, and you would include 80% of the numbers in Table 3 of Revenue Procedure 2025-16 as a reduction to your deductible lease payments.

IRS Publication 463, Travel, Gift and Car Expenses, delves into these rules in more detail.
— Joy Taylor, Editor The Kiplinger Tax Letter

3: Qualified Business Income (QBI) deduction

Q. The 20% qualified business income deduction is set to expire after 2025. Do you think Congress will extend this tax write-off?

A. Yes, it’s quite likely that the qualified business income (QBI) deduction will be extended if Congress is able to pass its large tax, border security and energy bill this year.

Self-employed people, independent contractors and owners of LLCs, S corporations and other pass-through entities can deduct 20% of their QBI, subject to limitations for individuals with taxable income in 2025 of more than $394,600 for joint filers and $197,300 for single filers and head-of-household filers. (The 2024 amounts are $383,900 and $191,950.)

This deduction ends after 2025, unless Congress acts. It was first enacted in the 2017 Tax Cuts and Jobs Act to provide some federal income tax parity between C corporations, which are taxed at a 21% rate, and pass-throughs, in which the individual owners pay income tax on earnings up to a 37% tax rate. Republican lawmakers want to extend the QBI deduction. And they have lots of support from lobbying groups representing Main Street businesses.
— Joy Taylor, Editor The Kiplinger Tax Letter

4: Deduction for rental profit

Q. I own rental homes and generate a profit from them that I report on Schedule E of my 1040. I heard that I can get a tax deduction for 20% of the profit. Is that true?

A. It depends. Rental income reported on Schedule E of the Form 1040 may, in some cases, be eligible for the 20% qualified business income deduction (discussed above). The IRS’s regulations say the rental activity must generally rise to the level of a trade or business, a standard which is based on each taxpayer’s particular facts and circumstances. Alternatively, there is a safe harbor if at least 250 hours a year of qualifying time are devoted to the activity by the taxpayer, employees or independent contractors. Time spent on repairs, collecting rent, negotiating leases and tenant services counts. Taxpayers who use the safe harbor must meet strict recordkeeping requirements and attach an annual statement to their tax returns. Meeting the safe harbor will let you treat the rental activity as a trade or business for QBI purposes. Note that you would take the QBI deduction on line 13 of your Form 1040 after completing Form 8995 or 8995-A.
— Joy Taylor, Editor The Kiplinger Tax Letter

5: Home office deduction

Q. My employer closed its office, and I now work fully remote from home for that employer. Can I claim the home office deduction if I itemize on Schedule A of the Form 1040?

A. No. Prior to 2018, certain employees could deduct the cost of home office expenses as unreimbursed employee costs included in Schedule A miscellaneous itemized deductions, subject to the 2%-of-adjusted-gross-income threshold. But the 2017 Tax Cuts and Jobs Act repealed this group of tax breaks through the end of 2025. We don’t know yet whether this prohibition on deducting employee business expenses will get extended past 2025.

The home office deduction is still available to self-employed people or independent contractors who file Schedule C with their 1040 and use a room or space in their home or apartment exclusively and regularly as their principal place of business. If you are self-employed and qualify for the write-off, there are two ways to figure the deduction. You can allocate your actual costs on Form 8829. Or you can use a simplified option by deducting $5 per square foot of space used exclusively for business, up to 300 square feet, resulting in a $1,500 maximum write-off.
— Joy Taylor, Editor The Kiplinger Tax Letter

We have already received many questions from readers on topics related to inherited IRAs, gifts, qualified charitable contributions and more. We’ll answer some of these in a future Ask the Editor round-up. So keep those questions coming!

Subscribers of The Kiplinger Tax Letter and The Kiplinger Letter can ask Joy questions about a tax topic. You'll find full details of how to submit questions in The Kiplinger Tax Letter and The Kiplinger Letter. (Subscribe to The Kiplinger Tax Letter or The Kiplinger Letter.)

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Read more from our Ask the Editor Series

• Ask the Editor, April 25, 2025: 529 plans.
• Ask the Editor, April 18, 2025: Amended returns.
• Ask the Editor, April 11, 2025: IRAs, RMDs and PTPs.
• Ask the Editor, April 4, 2025: The new tax bill, estate tax, and muni bonds.

If you have a tax paper from someone other than your employer, you may have received a 1099. But what does the form mean, and why did you receive yours?

IRS Form 1099 is informational. This means that taxes may not be due, but you should report the information (however small) anyway. Not only does this make your return more accurate, you can decrease the risk of getting audited by the IRS and potentially avoid any penalties or other tax fees associated with underfiling.

We’ll review the facts about each type of 1099 so you can get a start on the filing season — but keep in mind each state’s income tax requirements may differ from your federal return.

1099-A: Acquisition or Abandonment of Secured Property

You may have received Form 1099-A if your property was foreclosed on, abandoned, or repossessed, and met the below requirements:

• Must be land and any buildings on that land, OR
• Stocks, patents, or property that doesn’t physically exist, OR
• Business or trade property used for investment

A common example is a default on a house. However, you won’t receive a 1099-A if your personal car is repossessed, because motor vehicles do not meet the requirements (unless used for business).

Form 1099-A is needed to report:

• Taxable income from the transaction, including
• Any capital gain tax or loss resulting in the debt cancellation, AND
• Any ordinary gains or losses, if applicable

The income may be reported on Form 4797 or Schedule D for federal tax purposes.

1099-B: Proceeds From Broker and Barter Exchange

Form 1099-B is issued from your broker or mutual fund company whenever you sell:

• Stocks, including stock options
• Futures contracts or debt instruments
• Foreign currency contracts or other commodities

You’ll receive a 1099-B for every transaction (regardless of how many were sold) showing any gains or losses you made on each sale.

If this information is left out of your taxes, you could receive a CP2000, Unreported Income notice from the IRS. So it’s important to report on Schedule D and Form 8949 if applicable.

1099-C: Cancellation of Debt

You’ll likely already know if Form 1099-C is on the way since you need to negotiate a debt cancellation with your lender to receive one. Although canceled, your debt is generally taxable income. This may seem a bit unfair.

However, there are exceptions — below are a few examples. If the cancellation was due to…

• Bankruptcy,
• If you were insolvent at the time of cancellation, OR
• If you received student loan forgiveness

… you may not face taxes on that income. Unfortunately, most other cancellations are taxable, including:

• Credit card debt
• Loan modifications

But you’ll only receive a 1099-C if the cancellation was worth $600 or more. However, you should always report all canceled debts regardless of whether you meet this threshold. The amount you receive is reported in “other income” on your Form 1040.

1099-CAP: Changes in Corporate Control and Capital Structure

Sometimes major structural changes occur within a corporation which result in some benefit to you. In these cases, you may receive a form detailing those benefits.

For instance, if you receive cash or stock resulting from a merger or acquisition, that’s reported on the Form 1099-CAP.

It’s important to pay attention to this form not just for tax purposes, but for investing. The 1099-CAP can signify a change in organizational structure (thus a change in your investment) and you’ll want to be aware. You might also have a gain or loss because of this change. You’ll report this information on Form 8949 to the IRS.

1099-DIV: Dividends and Distributions

If you own stock that pays dividends (or distributions) that’s reportable to the IRS.

Typically, you’ll only receive a Form 1099-DIV for amounts $10 or higher; but taxpayers are required to report any income they receive on Form 1040.

Here are some common 1099-DIV reported categories:

• Ordinary and qualified dividends
• Total capital gains
• Collectibles gains
• Foreign tax paid
• Investment expenses

If you receive more than $1,500 in distributions, you may also need to file Schedule B.

1099-G: Certain Government Payments

Losing a job is never easy, so it may surprise you that your unemployment income is taxable. Since unemployment distributions are considered equivalent to wages, you’ll need to report them to the IRS.

What’s worse, unemployment fraud has gone up since the pandemic.

If you receive a Form 1099-G when you weren’t expecting one, contact your state’s unemployment agency immediately and ask for an updated form showing the actual amount of benefits received (none).

You can also report identity theft to the IRS directly by completing Form 14039, Identity Theft Affidavit.

1099-H: Health Coverage Tax Credit (HCTC) Advance Payments

Form 1099-H was for those who received advanced payments to help cover health insurance costs. This was part of a program run by the U.S. Department of the Treasury; however, the program has since ended. If you are amending returns from tax year 2021 or earlier, you may need this form.

1099-INT: Interest Income

You might have a taxable high-yield savings account or brokerage account that has issued this form to you. Form 1099-INT reports savings interest.

Often issued with a 1099-DIV, 1099-OID, or 1099-R, you may not owe tax. But it’s important to report the amount in case you do.

1099-K: Merchant Card and Third-Party Network Payments

You may have received a Form 1099-K if you’ve been paid by one or more methods:

• Payment processors like PayPal or Venmo
• Online marketplaces like Etsy or eBay
• Side gigs like Uber or Lyft
• Crowdfunding platforms including GoFundMe, or Kickstarter
• Payments from freelance or contractor work

However, if your income from these payment vendors is less than $5,000, you may not get one.

Be sure to report all income, even if below the threshold. And read the rules on hobby income vs. business income to know how your 1099-K should be reported.

For more information, see Kiplinger’s report IRS Form 1099-K: When You Might Get One.

1099-LS: Reportable Life Insurance Sale

When you sell a life insurance contract, you’ll receive a 1099-LS. Instances where this may occur include:

• Life settlements
• A terminal illness sale
• Policy transfer

The policy may not be taxed unless the amount you received exceeds your tax basis. A 1099-LS could result in:

• Ordinary income
• Capital gain or loss

1099-LTC: Long-Term Care and Accelerated Death Benefits

Form 1099-LTC is typically issued by insurance companies when you receive benefits from:

• Medical expenses for someone who is chronically ill
• Accelerated death payments for someone who is terminally ill

You may or may not be taxed on these benefits. Taxable income could be offset by the corresponding deductible expenses, but you should consult with a tax professional if you are unsure.

1099-MISC: Miscellaneous Information

Form 1099-MISC reports miscellaneous payments, like…

• Prizes
• Awards
• Rental income
• Healthcare payments
• Attorney income

The threshold for receiving a 1099-MISC is…

• $10 or more in royalties, OR
• $600 more in other income types

You’ll use the information to fill out various schedules and parts of your Form 1040, depending on the kind of income you receive.

1099-NEC: Nonemployee Compensation

If, over the tax year, you get $600 worth of fees, commissions, prizes, benefits, and awards for nonemployee services performed, you’ll probably be issued a Form 1099-NEC.

A few common professions generally receive 1099-NECs:

• Independent contractors, like accountants, lawyers, or veterinarians
• Self-employed individuals, like consultants
• Tradespeople like plumbers, electricians, or carpenters
• Sole proprietors, like small business owners or landscapers
• Freelancers, like editors or graphic design artists

This information used to be reported on 1099-MISC until the tax year 2019. For more information, see Kiplinger’s report on Understanding Self-Employment Taxes.

1099-OID: Original Issue Discount

When you buy a discounted note, bond, certificate of deposit, or other obligation, that could result in a Form 1099-OID. This means you will receive more money at maturity than you would have if you didn’t get the discount.

Because of this difference, the interest is taxable. You’ll typically get this tax form from the issuing brokerage company and report the interest on Schedule B or Form 1040.

1099-PATR: Taxable Distributions Receive From Cooperatives

Form 1099-PATR is commonly issued if you receive a distribution from a farm or co-op during the tax year.

The income is typically reported on one or more of the following forms, depending on the nature of the distribution:

• Schedule C, Profit or Loss from Business
• Schedule F, Profit or Loss from Farming
• Form 4835, Farm Rental Income and Expenses

Consult with a tax professional if you need help determining the appropriate form(s) for your situation.

1099-Q: Payments from Qualified Education Programs

Generally, income received on Form 1099-Q is tax-free as you’ll most likely have received this form due to distributions from qualified tuition programs (529 or private plans) or a Coverdell education savings account.

However, the income could be taxable if you spent the funds on:

• Non-qualified expenses
• Fewer qualifying expenses than the amount you received

Consult with a tax professional if you are unsure of whether your educational expenses qualify for tax-exempt status. You cannot claim an education tax credit for the same expense claimed on the 1099-Q.

1099-QA: Distributions From ABLE Accounts

The Achieving a Better Life Experience (ABLE) program provides a tax-advantaged savings account for those with disabilities. Eligible individuals must have been disabled or blind before their 26th birthday.

Form 1099-QA reports distributions made from these accounts. The income received is generally tax-free unless the funds were not used to pay for qualified disability-related expenses. In those cases, the distribution is taxable.

For more information, see Kiplinger’s report Tax Breaks for Parents of Children With Disabilities.

1099-R: Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans

Form 1099-R documents income from retirement benefits. These distributions come in two different varieties:

• Pre-tax contributions, which are generally taxable
• After-tax contributions, where part of the distribution is typically taxed

Retirement rollovers aren’t usually taxed. However, if you withdraw the funds to a personal account, you’ll have 60 days to roll them over to a new qualified plan. Otherwise, you may face taxes and penalties. Early distributions are also penalized.

For more information, see Kiplinger’s report How the IRS Taxes Retirement Income.

1099-S: Proceeds From Real Estate Transactions

When you sell a piece of property, you may not always think of the tax consequences. But with Form 1099-S, you should.

Common examples of 1099-LS proceeds include:

• Land
• Detached houses
• Townhouses
• Apartments
• Condominiums

Any capital gains on the form are also reportable to the IRS. But if you sold your primary residence — don’t panic! Homeowners could exclude the capital gains tax from the sale of principal residences.

1099-SA: Distributions From an HSA, Archer MSA, or Medicare Advantage MSA

The distribution from a Form 1099-SA is usually tax-free because the income is from a tax-advantaged medical savings account.

Additionally, contributions to the account are generally deductible, and the unspent balances can roll indefinitely from tax year to tax year.

However, if the distribution is spent on non-qualified medical purchases, like ineligible HSA expenses, you will be subject to both income tax and a 20% tax penalty.

1099-SB: Seller’s Investment in Life Insurance Contract

Form 1099-SB is filed after 1099-LS (sale or transfer of a life insurance policy) has occurred. While the latter documents the purchase, 1099-SB documents the cost basis for the life insurance. Form 1099-SB is also issued if the policy is transferred to a foreign individual.

SSA-1099 or SSA-1042S: Social Security Benefit Statement

SSA-1099 isn’t necessarily an IRS form but you might need one to do your taxes.

The Social Security Administration issues SSA-1099s, which detail your benefits income. Social Security can be taxable but the extent depends on income and filing status.

Americans living abroad may receive Form SSA-1042S instead.

What to do if you don’t receive your IRS Form 1099

If you haven’t received your Form 1099, don’t panic. The deadline for issuers to file is January 31, so you probably won’t get yours electronically or in the mail until February 15.

But reach out to the issuer if you still don’t have one after that date.

If you can’t get a hold of a new copy, contact the IRS for help at 1-800-829-1040. You may need to provide the issuer’s information (name, address, phone number) as well as your contact information, including SSN.

Related Content

• IRS Form 1099-K: When You Might Get One
• Types of Income the IRS Doesn't Tax
• What is Taxable Income?
• Capital Gains Tax Explained: How Much You Pay

Millions of Americans receive 1099-Ks from third-party payment platforms like PayPal, Venmo, Stripe, and more every year. But for the 2025 tax year, that number is expected to soar.

The IRS announced the reporting threshold for the 1099-K form will drop from $20,000 to $5,000, plummeting each year until $600.

As Kiplinger has reported, the new IRS 1099-K reporting change was supposed to go into effect two years ago. However, the adjustment was delayed twice by the IRS and modified to a phased-in approach. All of that has resulted in online vendors scrambling to keep up.

What should you do if you receive an incorrect Form 1099-K? And how does an additional tax form mean you could be at more risk of an audit?

And if that weren't enough, another 1099-K change could be coming. The U.S. House of Representatives recently passed its version of President Trump's "One Big, Beautiful" reconciliation bill. That bill, if ultimately approved by Congress and Trump, could repeal the $600 reporting threshold.

Here’s more of what you need to know.

Related: New IRS 1099-K Changes: What to Expect from PayPal, Venmo, More

$5,000 1099-K threshold

Taxpayers selling goods and services on online marketplaces or using third-party payment apps will typically receive a 1099-K form.

• If the total transaction(s) amount to $5,000 or more, IRS rules dictate that the vendor must send you and the IRS a 1099-K.
• This differs considerably from the prior 1099-K threshold of $20,000 and 200 transactions.

Taxpayers have always been and are still required to report all taxable income to the IRS. But in years past, fewer taxpayers were at risk of nontaxable transactions being reported to the IRS.

That was due to the much higher thresholds ($20,000/200 transactions) meaning that only a limited number of taxpayers with significant transaction volume would receive a 1099-K form. This reduced the likelihood of the IRS scrutinizing lower-value transactions.

While the new lower thresholds don’t change the taxability of certain items, online vendors might accidentally include them in your 1099-K. (So, more taxpayers may have to justify transactions as having a “personal purpose.”)

For instance, nontaxable transactions to friends and family could be misclassified as taxable.

PayPal, reports that scammers use its ‘Friends and Family’ payment option to cheat. That could cause vendors like PayPal to analyze the true nature of those transactions.

Here are a few other items that shouldn’t trigger taxes, but you might want to watch for on your next 1099-K in case they’re included:

• Splitting rent with a roommate
• Receiving funds for a ride-share, meal, or holiday gift
• Selling personal items at a loss*

*Note: While you can’t claim a loss on the sold personal item, you can offset the income received with what you originally paid on your return. The net effect is that no tax may be owed on personal items sold at a loss but talk with a tax consultant for professional help.

1099-K impact on taxes and audit risk

As mentioned earlier, just because an income item is included on your 1099-K, and is reportable, it’s not necessarily taxable. Your 1099-K could also come to you with an incorrect amount (personal, nontaxable items included by mistake).

However, taxpayers may feel pressured to pay tax on tax-free items simply because they’re on the Form 1099-K. This is the main criticism of the lower thresholds.

Taxpayers who have never received the 1099-K before may receive one. These casual, online sellers may become ensnared in the lower income threshold, particularly since not reporting 1099-K income can create a red flag for an IRS audit.

This is particularly true for the 1099-K, where reports have shown the IRS has underutilized this form in the past for auditing returns. The agency agreed to look more closely at its process for identifying 1099-Ks to audit, and these lower thresholds may fuel that flame.

What to do if your 1099-K has an error

Here are some preventative measures you can take to help ensure your 1099-K will be correct at year-end, and also corrective steps you can take if your form comes to you with incorrect information:

• Preventative. Throughout the year, document all your transactions across all online payment vendors, making sure you have proof (receipts, invoices, a note from a roommate, etc.) showing whether something is personal or business
• Preventative. If you haven’t already, set up your professional account for all reportable transactions, and keep those separate from a personal account
• Corrective. Contact the vendor immediately for a corrected 1099-K if you notice yours is incorrect
• Preventative and Corrective. Consult with a tax professional for help

The future of the 1099-K: eBay and legislation

As mentioned, the implementation of the lower 1099-K threshold was delayed twice by the IRS because online sellers and third-party platforms like eBay and Etsy required additional time to prepare for the new filing requirements.

In a press release last year, eBay's CEO stated, “...we need Congress to continue working towards a permanent solution.”

That sentiment is shared by many others in the industry.

Now, with the House having passed a bill to restore the old, higher 1099-K threshold, many online sellers and gig workers are hopeful Congress will provide permanent relief from the $600 rule.

The U.S. Senate will be under pressure to act. If the House provision makes it into a final bill signed by President Trump, the $20,000/200 transaction standard could be reinstated as soon as the 2025 tax year.

So, if you're affected by 1099-K reporting, keep good records and stay tuned until the Senate decides.

Related Content

• IRS 1099-K Changes: What to Expect from PayPal, Venmo, and More
• Types of Income the IRS Doesn't Tax
• How Long Should You Keep Tax Records?

Tis’ the season for giving, and your donations can actually give back to you by lowering your tax bill.

With a charitable donation, you can gift money or goods to a tax-exempt organization and reduce your taxable income on your federal tax return. Generally, you can deduct from 20% to 60% of your adjusted gross income through donations. However, there are some limitations.

For instance, cash donations to your company-sponsored fundraiser or department store may not be eligible. You can only deduct qualifying donations from an IRS-recognized tax-exempt organization or 501(c)3.

Here are some places you can donate this holiday season.

1. Animal rescues or shelters

If you’re interested in donating to an animal shelter or sanctuary, you can do local research and look up registered 501(c)3 organizations in your area. You can also verify if they are a registered tax-exempt organization by calling them, or by using the IRS tax-exempt organization search tool online.

Some shelters serve as life-long homes for disabled or senior animals, while others focus on rehabilitation and rehoming for adoption. Here are some examples.

Goats of Anarchy

Goats of Anarchy is a farm animal sanctuary dedicated to the rescue and rehabilitation of goats with disabilities. The registered 501(c)3 charity has been operating for about 7 years and is located on a 30-acre property in Hampton, New Jersey.

Almost 240 animals call the sanctuary their home including goats, sheep, alpacas, equines, cows, pigs, farming birds, more than 30 barn cats, and a handful of dogs.

You can give Goats of Anarchy a one-time donation, sponsor your favorite animal, or even donate stock to support the animals at the sanctuary. If you’re in the neighborhood, you can even volunteer to help out the team for a regular shift at least once a week.

Best Friends Animal Sanctuary

Best Friends is the nation’s largest no-kill animal sanctuary. The group started by rescuing dogs and cats from high-risk shelters in Utah, and today has several chapters around the country including in Los Angeles, CA, Salt Lake City, UT, New York City, Northwest Arkansas, and Houston, TX

The organization currently has a network of more than 4,200 animal welfare, shelter partners, and community members across the country.

Some of their partner rescues were impacted by Hurricanes Helene and Milton earlier this year, but you can donate or adopt by visiting their website bestfriends.org.

2. Thrift stores

If you’re doing some spring cleaning this winter, your clothes, furniture, books, or appliances can be donated to 501(c)3 thrift stores. While Goodwill and the Salvation Army may come to mind, you can do some research and donate to a smaller local thrift.

For example, in New York City, Housing Works has several stores across the city and all proceeds go towards funding and legislation to ensure all persons living with HIV/AIDS have access to housing, healthcare, treatment, and prevention.

Housing Works accepts cash donations online, thrift and book donations at your local shop, and can even arrange furniture pickup.

3. Toy drives

If you’d like to donate toys this holiday season, you can get in touch with local toy drives in your state or city. Don’t know where to start your search? Well, your local children’s hospital, church, public library, or neighborhood group may give you a lead.

Some fire departments, like FDNY Firezone, are registered 501(c)3 organizations with a funding bank specifically for toys. If you’d like to donate, it’s often asked that gifted toys aren’t wrapped for security reasons.

If you’re looking to donate to a bigger organization, the Marine Toys for Tots Foundation accepts online cash donations or you can drop off a toy at a local chapter. Local campaigns are celebrated each year in over 800 communities across all 50 states, including the District of Columbia, Puerto Rico, and the Virgin Islands.

4. Food drive

As it gets colder outside, many families like to participate in food drives to give those in need a warm meal. If you’d like to participate or donate to a 501(c)3 organization, you can research your state food bank or pantry.

• For instance, Feeding Florida has 9 chapters across the state that help serve 2,400 community-based partner agencies.
• The organization helps feed 2.9 million Floridians facing hunger, including over 800,000 children.

No Kid Hungry

Another organization that accepts donations is No Kid Hungry, you can contribute by giving a one-time or monthly donation online.

All proceeds go to help feed children at school, at home, or during the summer months — when some kids are often the hungriest due to lack of school meals.

5. Charitable foundations

If you have a specific cause you’d like to donate to, like awareness of climate change, medical research, or a local school district, you can do so.

For example, St. Jude Children's Research Hospital is a 501(c)3 that accepts monthly or one-time donations to help families front bills for treatment, housing, or food, while their children get medical attention.

The American Civil Liberties Union (ACLU) Foundation is another non-profit organization you can donate to. All proceeds go toward defending and advancing civil liberties via litigation, education, and lobbying.

Building Homes for Heroes is an IRS-recognized 501(c)3 that builds and modifies mortgage-free homes for first responders, injured veterans, and their families.

As mentioned, your local public schools, libraries, and hundreds of other deserving organizations may have a registered 501(c)3 fund where you can donate cash or non-monetary gifts to support their initiatives for those in need.

How to deduct donations on your tax return

As with all tax records, you should keep all documentation that supports your charitable donations. This may include acknowledgment letters or bank statements.

To claim charitable donations on your tax return, you must itemize deductions on Schedule A attached to your IRS Form 1040. As mentioned, your limit on monetary donations is 60% of your adjusted gross income.

Whether you donated cash or gifted a non-cash donation, you must keep a record or written documentation from the qualified organization that includes the following information:

• Date of contribution
• Name of organization
• The amount of cash donations and description (but not value) of non-cash contributions
• Whether the charity gave you goods and services in return for your donation

Additionally, if you’ve donated property worth $500 or more, you must submit a Form 8283 with your federal income tax return.

If you have any questions about how to keep track of your charitable contributions, you can always ask your certified public accountant, trusted tax professional, or financial planner. They’ll be more than happy to help you as you seek ways to give during the holidays or year-round.

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Getting the right tax advice and tips is vital in the complex tax world we live in. The Kiplinger Tax Letter helps you stay right on the money with the latest news and forecasts, with insight from our highly experienced team (Get a free issue of The Kiplinger Tax Letter or subscribe). You can only get the full array of advice by subscribing to the Tax Letter, but we will regularly feature snippets from it online, and here is one of those samples…

If you earn income from rental properties you may be eligible to claim a nice tax break: The 20% qualified business income (QBI) deduction is for self-employed individuals and owners of pass-through entities, such as LLCs, partnerships and S corporations. These individuals can deduct 20% of their QBI. The write-off also applies to some landlords with Schedule E rental income. There are lots of special rules and restrictions, most of which apply to people with taxable incomes, before the QBI deduction, of more than $383,900 on joint returns and $191,950 for all other returns. The QBI write-off is temporary. It ends after 2025 unless Congress extends it. 

There are two ways to qualify for the 20% QBI write-off for rental income. 

1. The first is if the rental activity rises to the level of a trade or business.
For this purpose, IRS regulations refer to the standard under tax code Section 162, the statute that generally governs the deductibility of trade or business expenses. 

There is no statutory or regulatory definition of a Section 162 trade or business. Instead, this determination is based on a taxpayer’s specific facts and circumstances. Some relevant factors are:

• The type of property (commercial or residential)
• Lease terms
• The extent of day-to-day involvement by the lessor or his or her agents
• The significance and type of ancillary services provided under the lease, and 
• The number of rentals.

Here are some best practices to treat your rental as a business: Keep expense receipts. Insure your realty. Keep separate bank accounts. And track time and services performed. 

2. A second way to qualify rental income as QBI is to meet an IRS safe harbor.
At least 250 hours must be devoted to the rental activity by the taxpayer, employees or independent contractors in a year. 

Time spent on the following counts: tenant services, repairs, property management, advertising, collecting rents, negotiating leases and supervising workers. 

Hours put in for driving to and from the property, arranging financing and constructing long-term capital improvements aren’t included. 

If you own multiple rental properties, you can treat each property separately or aggregate similar rental activities into commercial or residential categories. Those who use the safe harbor must meet strict recordkeeping requirements and attach an annual statement to their returns, as detailed in Rev. Proc. 2019-38. 

Contemporaneous records must detail hours, dates, and descriptions of the services and the people who performed them. If the services are done by contractors or employees, the taxpayers must keep logs of the work done by them, as well as proof of payment. 

Note: The safe harbor doesn’t apply to property leased under a triple net lease or if the owner’s personal use exceeds the greater of 14 days or 10% of the days rented. 

How rental income is reported
Treating rental income as QBI doesn’t change how you report that income. Real estate rental income is usually reported on Schedule E of the 1040. Also, the rental income generally isn’t subject to self-employment tax. If you qualify, you’d take the QBI write-off on Form 1040, line 13 and attach Form 8995 or 8995-A.

This first appeared in The Kiplinger Tax Letter. It helps you navigate the complex world of tax by keeping you up-to-date on new and pending changes in tax laws, providing tips to lower your business and personal taxes, and forecasting what the White House and Congress might do with taxes. Get a free issue of The Kiplinger Tax Letter or subscribe. 

Federal income tax rates didn’t increase in 2023, so if your personal finances didn’t change much last year, you probably won’t pay much more in taxes. There’s a good chance, though, that you’ll pay more to file your taxes. 

The average cost to have a tax professional prepare an individual federal tax return in 2023 was $248, an increase of more than 16% from 2021, according to a survey by the National Association of Tax Professionals. The price hike primarily stems from inflation and the increased complexity of tax returns, says Jennifer Van Elzen, director of member relations and analytics for the NATP. 

Tax preparers charge for their services in multiple ways, including by the hour or based on the number of tax forms you’re required to file. If your return is fairly simple — you’re claiming the standard deduction instead of itemizing, for example — you may pay less than the average cost. But when it comes to hiring a tax preparer, finding a reputable professional is critical. 

Start by looking for a preparer who is credentialed — a certified public accountant, an enrolled agent or an attorney. CPAs are licensed by state boards of accountancy, studied accounting at a college or university, and have passed a rigorous exam. Enrolled agents, who are licensed to appear before the IRS, must pass a rigorous test and meet annual continuing-education requirements. 

At a minimum, look for a preparer who participates in the IRS’s annual filing season program, a voluntary program the IRS offers to encourage uncredentialed preparers to take continuing-education courses.

In her recent annual report to Congress, National Taxpayer Advocate Erin Collins cited uncredentialed tax preparers as one of the most serious problems facing taxpayers. Unscrupulous operators use the tax-preparation process as an opening to sell high-priced loans or hijack personal information to commit identity theft, says Collins. 

Senior citizens with low-to-moderate income are eligible for free tax assistance from the AARP’s Tax-Aide program, which provides trained tax volunteers at sites around the country. You can also arrange for an AARP volunteer to coach you if you want to file online. 

Deals for DIY tax filers

You can save money by using tax software to prepare and file your taxes, and depending on your income, you may be able to do it for free. If your 2023 adjusted gross income (AGI) was $79,000 or less, you can use IRS Free File to prepare and file your federal tax return (and in some cases your state return) for free. Free File is a partnership between the IRS and tax software providers who have agreed to make their software available at no cost to eligible taxpayers. 

There are some drawbacks. Participating providers are allowed to impose their own criteria, based on age, AGI, state of residency or other factors, so you probably won’t qualify for all of them. More significantly, the major tax software providers, TurboTax and H&R Block, no longer participate in Free File. 

Most tax software providers offer free versions of their programs, but scrutinize the fine print before you start plugging in your numbers. Although these programs allow you to start preparing your return for free, you could be required to upgrade to a paid program for multiple reasons — you contributed to a health savings account, for example. 

In January, the Federal Trade Commission issued an order barring TurboTax from marketing its services as free unless it makes its product free to all taxpayers. The FTC said TurboTax’s advertising is deceptive because two-thirds of taxpayers are ineligible for the free product. “Most taxpayers do not have ‘simple tax returns,’ as defined by [TurboTax parent company] Intuit, and thus do not qualify to file for free using Free Edition,” the FTC said in its order. TurboTax called the order “deeply flawed” and said it will appeal. 

For its part, H&R Block says its 2023 free version includes 43 different tax forms, which will enable even more taxpayers to qualify for the product than in the past. At the same time, the company said that many Americans have complex filing situations that don’t qualify for the free version. Taxpayers who have health savings accounts, for example, must upgrade to H&R Block’s Deluxe product.

You can save money by using products that aren’t as well known as TurboTax and H&R Block. FreeTaxUSA will prepare and e-file your federal tax return for free, even if the return is complex. The company makes money by charging for state tax returns ($14.99 per state). TaxSlayer’s classic version supports all federal tax forms, deductions and credits for $22.95, plus $39.95 for a state tax return (prices here are as of press time and could change). 

If you’re a committed TurboTax or H&R Block software user, look for deals. Many banks and brokerages offer their customers discounts on tax software, and you can also find coupons at websites such as Coupons.com and RetailMeNot.com.

What to know about filing directly with the IRS

Meanwhile, the IRS is testing a program that would allow taxpayers to file their federal tax returns directly with the IRS, at no cost. The pilot program, which is being tested in 12 states, is limited to low- and moderate-income taxpayers with simple returns. (To find out whether you qualify, go here.) 

The IRS says Direct File is not intended to replace any of the existing tax preparation programs. Still, the program has faced pushback from tax software providers. In a statement, TurboTax said Direct File was a “solution in search of a problem” because many taxpayers can already file for free.

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Getting the right tax advice and tips is vital in the complex tax world we live in. The Kiplinger Tax Letter helps you stay right on the money with the latest news and forecasts, with insight from our highly experienced team (Get a free issue of The Kiplinger Tax Letter or subscribe). You can only get the full array of advice by subscribing to the Tax Letter, but we will regularly feature snippets from it online, and here is one of those samples…

If you made a qualified charitable distribution (QCD) from your IRA in 2023, reporting it on your 1040 or 1040-SR can be tricky. 

Individuals 70½ and older could transfer up to $100,000 in 2023 from a traditional IRA directly to charity. The cap for 2024 is $105,000 because the Secure Act 2.0 retirement law provides for annual inflation indexing of the $100,000 original cap, starting this year. These charitable gifts can count as all or part of your required minimum distribution (RMD). But you’re not taxed on them, and they are not added to your adjusted gross income. 

If you did a QCD in 2023, the 2023 Form 1099-R that you received this year won’t reflect the QCD. It will show only the total amount of distributions made from the IRA in 2023 because IRA custodians lack firsthand knowledge to discern whether a particular payout from a traditional IRA meets the QCD rules. 

When filling out your 2023 Form 1040 or 1040-SR, include on line 4a the total amount of distributions reported on Form 1099-R. Then you subtract the amount that was transferred directly to charity and report the remainder (even if it’s $0) on line 4b. Write “QCD” next to line 4b so the IRS knows why the numbers don’t match. If using tax software, a drop-down box for line 4b should give you a choice to click QCD. 

If you itemize on Schedule A, be sure not to deduct the QCD amount. That would be double-dipping.

Similar rules apply to tax-free rollovers from IRAs. Again, the 1099-R will show the figure rolled over from the IRA as part of total distributions. On your 1040, include the full distribution amount on the 1099-R on line 4a. Subtract the rollover and report the remainder, if any, on line 4b. Write “Rollover” next to line 4b. 

This first appeared in The Kiplinger Tax Letter. It helps you navigate the complex world of tax by keeping you up-to-date on new and pending changes in tax laws, providing tips to lower your business and personal taxes, and forecasting what the White House and Congress might do with taxes. Get a free issue of The Kiplinger Tax Letter or subscribe. 

I recently became the editor of Kiplinger Personal Finance magazine. To help ensure that I’m prepared to take on this exciting new role, my husband and I decided to hire a nanny to care for our two young children while we work. Having a nanny come to our house frees up time that I previously spent running our children to and from day care. And because I work from home, I can enjoy lunch with my kids or take a walk with them when I need a break from my desk.

The convenience of having an in-home caregiver for your kids comes at a premium price and with considerable tax ramifications. The national average weekly rate for a nanny in 2022 was $701 for one child or $726 for two, according to the most recent Cost of Care survey from Care.com. That compares with $268 for one child or $510 for two children at a daycare center. And because a nanny is a household employee, the IRS requires you to withhold and pay tax if her income from the nanny job reaches a certain annual minimum threshold — for 2023, it’s $2,600.

Managing the tax complexities.

As a nanny’s employer, you must pay your share of Social Security and Medicare (FICA) taxes — an amount equal to 7.65% of her wages — as well as federal and state unemployment taxes. In addition, you must withhold from the nanny’s pay her share of FICA tax, which is 7.65% of her wages. The nanny’s earnings are subject to federal and state income tax, too. (The same tax rules apply to any household employee — such as a cook or housekeeper — for whom you control not only the work they do but how they do it; independent contractors who have multiple clients and use their own supplies — say, providers of lawn care or cleaning services — are not household employees.)

To simplify the task of withholding and paying tax, I plan to use a payroll service. You can look for a local accountant who offers payroll assistance or check out a provider that operates online. SurePayroll ($50 monthly), for example, calculates the amount of tax owed, deducts tax from the nanny’s pay, arranges direct deposit of paychecks into her bank account, and remits federal, state and local taxes for you. The program also prepares Schedule H, which reports household employment taxes on your federal tax return.

Other providers of similar online services include Poppins Payroll ($49 monthly) and HomePay ($75 monthly). If you’re willing to file and send tax payments yourself but want help tracking them and figuring out how much you owe, try Simple Nanny Payroll ($29 yearly).

Don’t miss these tax breaks.

To ease the tax bite, I’m contributing to a dependent-care flexible spending account (FSA). If your employer offers one, you can stash away pretax money from your paycheck to cover care for children younger than 13 while you work or look for work. Qualifying expenses include a nanny, day care, preschool, after-school programs and summer day camps. (You can also use dependent-care FSA funds for expenses related to elder care or other care for dependent adults.) The IRS limits household contributions to dependent-care FSAs to $5,000 per year (or $2,500 yearly for those married filing separately).

The child and dependent care tax credit can help offset care expenses, too. You can claim the credit on up to $3,000 in care expenses for one child or up to $6,000 for two or more children. (Only expenses that are not reimbursed by a dependent-care FSA are eligible for the tax credit.) As with an FSA, the care must take place while you work or look for work, and the child must be younger than 13. The maximum credit that you can claim depends on your adjusted gross income. If your AGI is more than $43,000, you can claim up to 20% of care expenses. The percentage increases as AGI decreases, topping out at 35% for those with AGI of up to $15,000.

Note: This item first appeared in Kiplinger's Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

Related Content

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Do yourself a favor: Look at your last paycheck and see how much federal income tax has been withheld from your wages so far this year. If you've had too much or too little withheld, there's still time to adjust your tax withholding for the rest of the year (and beyond). But, since you probably only have a couple of pay periods left this year, you need to act as soon as possible to have an impact on your overall 2021 withholding.

Making a change can put more money in your pocket now…or shield you from an IRS penalty later. The goal is to have your annual tax withholding be as close to your overall tax liability for the year. Think like Goldilocks – you want your tax withholding to be "just right."

If you have too much tax withheld during the year, your take-home pay isn't as high as it could be and you're effectively giving Uncle Sam an interest-free loan each pay period (you won't get paid back until you get your next tax refund). Reducing your tax withholding in this case will immediately boost your paycheck (it's like giving yourself a raise). And, yes, next year's tax refund will be smaller…but that just means you're not letting the government hold on to and use your money for a few months (again, without paying interest).

On the other hand, if your employer doesn't withhold at least (1) 90% of the income tax you expect to owe for 2021, or (2) 100% of the tax you paid for 2020 (110% if your 2020 adjusted gross income was more than $150,000), you could be hit with an underpayment penalty when you file your federal tax return next April. Increasing your tax withholding now can help reduce or completely avoid this penalty. It can also lower or prevent a tax bill when you file your federal tax return next year.

File a New W-4 Form to Change Your Tax Withholding

There are many reasons why your tax withholding could be a bit off. Common causes include a marriage, divorce, birth of a child, or home purchase during the year. If it looks like your 2021 tax withholding is going to be too high or too low because of one of these or some other reason, you can submit a new Form W-4 now to increase or decrease your withholding for the rest of the year. Give the new form to your employer and they'll take it from there (check with your HR department to find out exactly who you should send the form to). Your employer must implement any change by the start of the first payroll period ending on or after the 30th day after you submit a new W-4 form for this year.

Although there are five "steps" on the W-4 form, only Step 1 (name, address and filing status) and Step 5 (sign and date) are required for everyone. You only have to complete Steps 2 to 4 if they apply to you (e.g., you have more than one job, a spouse that works, dependents or other adjustments). Completing all relevant steps will bring your tax withholding closer to your tax liability, which (again) is the goal.

If you just want to increase your withholding, one easy way to do this is to specify an extra amount you'd like to have withheld from your paycheck on Line 4(c) of the W-4 form.

IRS's Withholding Tax Calculator

To help you determine if and/or how much to adjust your 2021 withholding, use the IRS's Tax Withholding Estimator as soon as you can. Have your most recent pay stub and a copy of your 2020 tax return handy to help estimate your 2021 income. Again, you must act quickly, since we're almost to the end of the year.

We also recommend using the tax withholding calculator early in 2022 to see if additional adjustments are beneficial going forward. In fact, it's a good idea to check your withholding every year. And the earlier in the year you do it – and make any necessary adjustments – the better. That way your tax withholding will be more even and accurate throughout the year.

But remember that you aren't required to submit a new W-4 form to your employer unless you're starting a new job. If your company doesn't receive a new form from you, it will just continue to withhold taxes based on the most recent W-4 it has on file for you.

Form 1099-K reporting requirements have created a lot of confusion, and it's understandable why.

Recent changes to federal tax reporting rules require third-party payment networks — popular apps and online marketplaces like PayPal, Venmo, CashApp, Etsy, and eBay — to send IRS Form 1099-K to millions of online sellers.

Many of those sellers haven’t received 1099-Ks before, so understanding the new rules is important for anyone involved in e-commerce.

Let's clarify the new requirement and what it means for you, starting with what a 1099-K Form is.

What is a 1099-K?

Form 1099-K is an IRS reporting form you may receive from third-party payment processors like Venmo, PayPal, Stripe, and Cash App.

Additionally, this form is generated by various online platforms that process payment transactions, such as eBay, StubHub, Etsy, and others.

The IRS refers to these and similar payment apps and online marketplaces as third-party settlement organizations (TPSOs).

• The 1099-K contains information for your tax return about the gross amount of payment transactions you had on a third-party payment network.
• Companies that have to send a 1099-K provide a copy to you and the IRS.
• You usually receive your 1099-K in late January each year. (So, your 1099-K for the 2024 tax year would arrive in January or early February 2025.)

The $600 Rule

When it comes to 1099-K forms, you may have heard about the “$600 rule.”

This refers to reporting requirements that apply when payments you receive for goods or services through third-party payment networks and online marketplaces exceed $600.

To understand what this means, it helps to have a little history.

1099-K Reporting Key Points

• Before 2022, if you were selling goods or services online, tax law dictated that you would only receive a 1099-K if you had more than $20,000 and over 200 transactions during the year. That was a relatively high bar that most casual sellers never had to worry about.
• Then came the American Rescue Plan Act during the pandemic. Suddenly, the plan was to lower that threshold dramatically to just $600, regardless of the number of transactions. This change (known as the $600 rule) was supposed to kick in for the 2022 tax year. Some of the rationale behind the rule was to improve tax compliance.
• However, the $600 rule caused so much confusion and debate that the IRS delayed the new 1099-K rule (more than once). The agency cited administrative concerns for online sellers and payment processors. (As Kiplinger reported, numerous businesses and organizations also advocated for 1099-K relief for casual online sellers.)
• Instead, the tax agency announced a $5,000 threshold for the 2024 tax year as part of a phase-in to implement the $600 reporting threshold.

That brings us to the upcoming tax filing season. Here’s what you need to know

2024 1099-K threshold

The IRS is easing into the lower threshold by delaying the $600 rule and adopting a phased implementation.

• For 2024, the 1099-K reporting threshold is $5,000 or greater.
• So, It’s a kind of a compromise — not as low as $600, but still requiring more reporting of transactions.

Then, in 2025, the IRS says the threshold will move to $2,500 or more in transactions. In 2026, unless Congress takes action or other changes occur, the $600 threshold will take effect.

What does this mean for you?

If you're selling online or using payment apps for business, here are some points to keep in mind:

1. Not all transactions reported on a 1099-K are necessarily taxable. The amount reported is the gross total, which doesn't account for things like fees, refunds, or the cost basis of items sold.

2. When it comes to personal transactions, only business-related payments should be reported on a 1099-K. Personal transactions — like splitting bills among friends or giving gifts — aren’t included in this reporting requirement.

However, if you sell items at a loss, you might still receive a 1099-K, but this, as mentioned, doesn't automatically mean you owe taxes on that amount.

3. Regardless of whether you receive a 1099-K, the IRS expects you to report all taxable income.

IRS 1099-K: Bottom Line

As sellers, payment networks, and the IRS navigate these changes, It's important to keep good records.

You might want to separate business and personal transactions if you can. And remember, just because you receive a 1099-K doesn't automatically mean you owe taxes on that amount.

If you receive Form 1099-K, make sure it matches the information in your records. If there are any problems with your 1099-K (e.g., the amounts listed don’t belong to you, or other information on the form is incorrect), you should contact the third-party payment network that sent the form. They might be able to issue a corrected form.

Consult a qualified and trusted tax professional if you need clarification on your 1099-K or other tax reporting requirements for your return.

Also...stay tuned. There could be some bipartisan support in Congress for a higher 1099-K reporting threshold since several lawmakers see the $600 amount as overly burdensome.

Related Content

• Types of Income the IRS Doesn't Tax
• Etsy, eBay, PayPal Want IRS 1099-K Relief
• Income Tax Brackets for 2024
• Holiday Shopping Tax Tips for Business Owners

Do yourself a favor: Look at your last paycheck and see how much federal income tax has been withheld from your wages so far this year. If you've had too much or too little withheld, there's still time to change your tax withholding for the rest of the year (and beyond). But, since you probably only have a couple of pay periods left this year, you need to act as soon as possible to have an impact on your overall 2022 withholding.

Making a change can put more money in your pocket now…or shield you from an IRS penalty later. The goal is to have your annual tax withholding be as close to your overall tax liability for the year. Think like Goldilocks – you want your tax withholding to be "just right."

If you have too much tax withheld during the year, your take-home pay isn't as high as it could be and you're effectively giving Uncle Sam an interest-free loan each pay period (you won't get paid back until you get your next tax refund). Reducing your tax withholding in this case will immediately boost your paycheck (it's like giving yourself a raise). And, yes, next year's tax refund will be smaller…but that just means you're not letting the government hold on to and use your money for a few months (again, without paying interest).

On the other hand, if your employer doesn't withhold at least (1) 90% of the income tax you expect to owe for 2022, or (2) 100% of the tax you paid for 2021 (110% if your 2021 adjusted gross income was more than $150,000), you could be hit with an underpayment penalty when you file your federal tax return next April. Increasing your tax withholding now can help reduce or completely avoid this penalty. It can also lower or prevent a tax bill when you file your federal tax return next year.

File a New W-4 Form to Change Your Tax Withholding

There are many reasons why your tax withholding could be a bit off. Common causes include a marriage, divorce, birth of a child, or home purchase during the year. If it looks like your 2022 tax withholding is going to be too high or too low because of one of these or some other reason, you can submit a new Form W-4 now to increase or decrease your withholding for the rest of the year. Give the new form to your employer and they'll take it from there (check with your HR department to find out exactly who you should send the form to). Your employer must implement any change by the start of the first payroll period ending on or after the 30th day after you submit a new W-4 form for this year.

Although there are five "steps" on the W-4 form, only Step 1 (name, address, Social Security number and filing status) and Step 5 (sign and date) are required for everyone. You only have to complete Steps 2 to 4 if they apply to you (e.g., you have more than one job, a spouse that works, dependents or other adjustments). Completing all relevant steps will bring your tax withholding closer to your tax liability, which (again) is the goal.

If you just want to increase your withholding, one easy way to do this is to specify an extra amount you'd like to have withheld from your paycheck on Line 4(c) of the W-4 form.

IRS's Withholding Tax Calculator

To help you determine if and/or how much to adjust your 2022 withholding, use the IRS's Tax Withholding Estimator as soon as you can. Have your most recent pay stub and a copy of your 2021 tax return handy to help estimate your 2022 income. Again, you must act quickly, since we're almost to the end of the year.

We also recommend using the tax withholding calculator early in 2023 to see if additional adjustments are beneficial going forward. In fact, it's a good idea to check your withholding every year. And the earlier in the year you do it – and make any necessary changes – the better. That way your tax withholding will be more even and accurate throughout the year.

But remember that you aren't required to submit a new W-4 form to your employer unless you're starting a new job. If your company doesn't receive a new form from you, it will just continue to withhold taxes based on the most recent W-4 it has on file for you.

Russia's invasion of Ukraine has triggered a worldwide outpouring of support for victims of the war. And aide to those suffering is not just coming from other nations. Ordinary citizens from around the world are helping, too. They're showing up in neighboring countries to help refugees, sending care packages, donating to relief organizations, giving blood, and more.

In the U.S., some companies are facilitating this effort by setting up leave-based donation programs. Under these programs, workers can give up their vacation, sick, or personal leave in exchange for having their employer make a cash donation to a charitable organization tied to Ukrainian relief efforts. However, one of the questions workers may have about participating in a leave-based donation program is whether their donation will be treated as taxable income on their W-2 form.

Fortunately, the IRS has cleared up this concern for leave-based programs set up to help victims of the war in Ukraine. According to the tax agency, payments made by an employer under such a leave-based donation program before January 1, 2023, won't be treated as gross income, wages, or compensation of their workers. As a result, employees who elect to forgo leave under a leave-based donation program to help Ukrainian war victims won't be treated as having constructively received gross income, wages, or compensation. That also means an employer shouldn't include the payments it makes to a charity under the program in Box 1, 3, or 5 of its electing employees' W-2 forms.

However, to prevent "double dipping," workers who participate in a leave-based donation program can't claim a charitable contribution deduction on their 2022 tax return for the value of their forgone leave. On the other hand, the employer may be able to deduct its payments to charity if it otherwise meets the requirements for a charitable deduction.

Time is running out if you haven't already filed your 2021 federal tax return. For most people, the tax return filing deadline is April 18 this year (residents of Maine and Massachusetts get one extra day). So, for all you tax procrastinators out there, it's time to get moving. One of the first things you should do is collect and organize your tax records. If you're going to file your own 1040, you should also check out tax software options. If you need more time to file your return, request a tax filing extension (although you'll still have to pay any tax you expect to owe). And, no matter when you fill out your 2021 tax return, you first want to familiarize yourself with the tax law changes that may impact it.

Many (but not all) of the new items on the 2021 1040 form come from the American Rescue Plan Act, which was enacted last March. This Covid-relief bill made changes to the child tax credit, child and dependent care credit, earned income tax credit, and more. Other changes stem from the expiration of earlier Covid-related provisions that expired at the end of 2020. There are a few modifications to some of the main 1040 schedules, too. And, of course, there are the normal inflation-based adjustments that occur every year.

There are many reasons why you should know and understanding these changes up front. First and foremost, it very well may result in a larger tax refund or a smaller tax bill. You're also likely to get through your return faster if you're already aware of any new twists and turns. If someone else prepares your 1040, it will be easier to catch any errors when you review the return. But since "Tax Day" is right around the corner, you don't have much time left to get up-to-speed on what's new and changed for your 2021 tax return. So take a look at our list below and study up now so you know what to look for before tackling your 1040.

"Tax Day" is the day that federal personal income tax returns are due. It was delayed the past two years because of COVID-19. In 2020, Tax Day was pushed back to July 15, and last year it was moved to May 17. This year, however, the tax return filing deadline is moved back to its normal spot on the calendar…well, sort of.

Federal income tax returns are normally due on April 15. But this year most 2021 tax returns aren't due until April 18. That's because of a holiday in the District of Columbia. If you live in Maine or Massachusetts, your federal return isn't due until April 19, thanks to a local holiday in those states. Victims of certain recent natural disaster can wait even longer to file their return.

There are some subtle, but important, changes to the 1040 form itself for 2021 tax returns. Generally, they're needed to account for changes to the tax laws that are discussed below. For instance, the line on page 1 of the 1040 used for reporting the $300 deduction for charitable cash contributions was moved down on the form so that the deduction no longer impacts your federal adjusted gross income (AGI). This is important because your federal AGI is used to calculate several other tax breaks and obligations. It's also used by many states as the starting point for determining your state income tax liability.

Lines 19 and 28 on page 2 of the 1040 form were also adjusted to account for the fact that the child tax credit is fully refundable for the 2021 tax year. Line 27 was also modified and expanded (including a new check box) to satisfy changes to the earned income tax credit. (See more about changes to the child tax credit and earned income credit below.)

The idea of having a postcard-size tax form has been totally abandoned, too. We see this in the expansion of Schedules 1, 2, and 3 that go with the 1040 form. For 2020 returns, each of these schedules fit on one page. Now, for 2021 tax returns, they're each two pages long. The extra length is due to various additions to income, "above-the-line" deductions, extra taxes, and less common credits now getting their own line on these forms instead of being lump together as an "other" item to include.

Approximately 90% of all taxpayers claim the standard deduction instead of itemized deductions. Fortunately, the standard deduction amounts you'll use on your 2021 tax return are larger than last year, thanks to the annual adjustment for inflation. For the 1040 form you'll complete this year, married couples filing a joint return can claim a $25,100 standard deduction. That's a $300 increase over the 2020 tax year amount. For each spouse 65 years of age or older, you can tack on an additional $1,350 ($1,300 for 2020).

Single filers can claim a $12,550 standard deduction on their 2021 tax return ($12,400 for 2020). That jumps to $14,250 if you're at least 65 years old ($14,050 for 2020).

For head-of-household filers, the standard deduction for 2021 tax returns is $18,800 ($18,650 for 2020), plus an additional $1,700 if they're at least 65 years old.

Regardless of their filing status, blind people can add an additional $1,350 to their 2021 standard deduction ($1,700 if they're unmarried and not a surviving spouse).

The tax rates you'll see on your 2021 tax return are the same as they were last year: 10%, 12%, 22%, 24%, 32%, 35% and 37%. However, the income ranges that apply to each tax rate bracket have changed. Use the tables below to find the appropriate tax bracket for your 2021 return. It's based on your filing status and taxable income (Line 15 of your 1040 form).

Remember, though, that the tax rate associated with the bracket you fall into doesn't apply to all your income. It only applies to the amount of your taxable income that's within the bracket's range. So, for example, if you're single with $50,000 of taxable income in 2021, only the last $9,475 of your taxable income is taxed at the 22% rate ($50,000 - $40,525 = $9,475). The rest is taxed at either the 10% or 12% rate.

2021 Tax Brackets for Single Filers and Married Couples Filing Jointly

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2021 Tax Brackets for Married Couples Filing Separately and Head-of-Household Filers

If you hold on to a capital asset (e.g., stocks, bonds, real estate, art, etc.) for at least one year, any gains from the sale of the asset are taxed at a lower capital gains rate – either 0%, 15%, or 20%. The same rates apply to qualified dividends. Which rate applies to you depends on your taxable income.

For your 2021 federal income tax return, the 0% rate applies if you're single with taxable income up to $40,400 ($40,000 for 2020), a head-of-household filer with taxable income up to $54,100 ($53,600 for 2020), or a married couple filing a joint return with up to $80,800 of taxable income ($80,000 for 2020).

The 20% rate kicks in at $445,851 of taxable income for single filers ($441,451 for 2020), $473,751 for head-of-household filers ($469,051 for 2020), and $501,601 for joint filers ($496,601 for 2020).

If your taxable income falls between the 0% and 20% thresholds for your filing status, then the 15% rate applies.

As mentioned above, the $300 deduction for cash contributions to charity no longer affects your federal AGI. There's also another important change to this deduction for 2021 tax year returns – married couples can now deduct up to $600. For 2020 returns, married couples who filed jointly could only deduct $300. However, one deduction is allowed per person now, which means each spouse can deduct up to $300 on a joint 2021 return.

Note that this deduction is only available if you claim the standard deduction. It also expired at the end of 2021, so you won't be able to claim it on your 2022 return.

Several significant upgrades to the 2021 earned income tax credit (EITC) were made by the American Rescue Plan Act. The biggest changes will allow more childless workers to claim the EITC on their 2021 tax return. For one thing, the minimum age for claiming the credit without a qualifying child is lowered from 25 to 19 (except for certain full-time students). Workers over the age of 65 can claim the credit on their 2021 return, too. The maximum credit available for workers without a qualifying child also jumps from $543 to $1,502. Expanded eligibility rules for former foster youth and homeless youth were put in place for the 2021 tax year as well.

While the modified rules listed above for childless workers only apply for the 2021 tax year, the American Rescue Plan Act made a few other changes to the EITC that are permanent. For example, the $3,650 limit on a worker's investment income is bumped up to $10,000, and the cap will be adjusted for inflation each year going forward. In addition, certain married couples who are separated can now claim the credit on separate tax returns. And certain workers who can't satisfy the EITC identification requirements for their children can now qualify for the credit as a childless worker.

Finally, as with the 2020 EITC, you can use your 2019 earned income to calculate your 2021 EITC if it's more than your 2021 earned income. Since this can increase or decrease your EITC, calculate the credit using both your 2019 and 2021 earned income to see which method will save you the most money.

To calculate your EITC, complete the worksheets associated with Lines 27a, 27b, and 27c of Form 1040 in the instructions for Form 1040. If you have a qualifying child, also complete Schedule EIC and attach it to your 1040 form.

As with the earned income tax credit, the American Rescue Plan Act made major improvements to the child tax credit for the 2021 tax year. For instance, the credit amount for 2021 tax returns was increased from $2,000-per-child to $3,000-per-child six to 17 years of age and to $3,600-per-child five years old and younger. However, the extra $1,000 or $1,600 is phased out for single filers with a federal AGI above $75,000, head-of-household filers with a federal AGI above $112,500, and joint filers with a federal AGI above $150,000. The credit is further reduced under pre-existing rules for single and head-of-household filers with a federal AGI above $200,000 and married couples filing jointly with a federal AGI above $400,000.

Any child tax credit claimed on your 2021 return is also fully refundable for most parents, even if you don't have any earned income (normally, the credit is only partially refundable – up to $1,400-per-child – and you must have at least $2,500 of earned income). Children who are 17 years old also qualify for the 2021 credit (child normally must be 16 or younger to qualify). Finally, unless you opted-out of the payments, families received 50% of their estimated 2021 child tax credit amount in advance through monthly payments sent between July 15 and December 15 last year.

To calculate the child tax credit allowed on your 2021 tax return, you must subtract the monthly payments you received last year from the total credit that you're otherwise entitled to claim for the 2021 tax year. (The IRS will send you a Letter 6419 showing the amount paid to you in monthly payments.) If the total child tax credit amount is more than your combined monthly payments, you can claim the excess amount as a credit on your return. However, if the total credit amount is less than your payments, you might have to pay back the extra child credit payments.

Use Schedule 8812 to reconcile the advance payments you received last year with the actual child tax credit you're entitled to claim on your 1040 form, and to see if you need to pay back any payments (they will be paid back in the form of an additional tax calculated Part III of the schedule).

For more information about claiming the 2021 credit, see Child Tax Credit FAQs for Your 2021 Tax Return.

Parents benefiting from the child tax credit enhancements may be able to cut their 2021 tax bill even further because of big changes to the child and dependent care credit made by the American Rescue Plan Act. For example, the maximum credit is increased from 35% to 50% of eligible expenses for the 2021 tax year. Plus, the credit percentage won't be reduced for families making less than $125,000 a year (instead of $15,000 per year), and all taxpayers earning less than $438,000 can claim at least a partial credit on their 2021 return.

The 2021 credit applies to more child or dependent care expenses, too. The credit percentage is applied to as much as $8,000 of eligible expenses for one child/disabled person and up to $16,000 of expenses for two or more (the amounts are usually $3,000 and $6,000, respectively). That means the total credit amount can be as high as $4,000 if you have just one child/disabled person and $8,000 if you have more ($1,050 and $2,100, respectively, for 2020).

The child and dependent care credit for the 2021 tax year is also fully refundable for most people (it's usually a nonrefundable credit). Form 2441 is used to calculate the credit.

See Your Child Care Tax Credit May Be Bigger on Your 2021 Tax Return for details.

The American Rescue Plan Act improved the premium tax credit for 2021 and 2022 to lower premiums for people who buy health insurance through an Obamacare exchange (e.g., HealthCare.gov) on their own. The credit amount was increased for eligible taxpayers by reducing the percentage of annual income that households are required to contribute toward their health insurance premium. The law also allowed the credit to be claimed by people with an income above 400% of the federal poverty line.

For certain people who purchase health insurance through an exchange, an estimated premium tax credit amount is paid in advance to the insurance company. If advance payments are made on your behalf, you must reconcile the credit and the advance payments when you file your tax return. If the advance payments are greater than the actual allowable credit, the difference (subject to certain repayment caps) usually must be paid back. However, the American Rescue Plan Act eliminated the repayment requirement – but only for the 2020 tax year. As a result, excess advance payments made in 2021 will have to be repaid when you file your 2021 tax return.

Use Form 8962 to calculate your premium tax credit and reconcile it with any advance payments. Also make sure you submit Form 8962 with the rest of your 2021 tax return.

The nonrefundable credit for expenses related to the adoption of a child is a little larger for the 2021 tax year. For 1040 forms filed this year, the credit can be worth up to $14,440 ($14,300 for 2020). Plus, the full credit is available for a special-needs adoption, even if it costs less.

The credit begins to phase out if your modified AGI is over $216,660 and it's eliminated altogether if your modified AGI reaches $256,660 ($214,520 and $254,520, respectively, for 2020). To claim the credit, complete Form 8839 and report the credit amount on Line 6c of Schedule 3. Also submit Form 8839 with the rest of your 2021 tax return.

The income tax exclusion for company-paid adoption aid was also increased from $14,300 to $14,440 for the 2021 tax year.

The alternative minimum tax (AMT) was originally designed to hit only wealthier Americans. However, the AMT exemption amount wasn't always adjusted annual for inflation – but it is now. For the 2021 tax year, the AMT exemption jumped from $113,400 to $114,600 for married couples filing a joint return and from $72,900 to $73,600 for single and head-of-household filers.

The phase-out ranges for the AMT exemption are adjusted for inflation each year, too. For 2021 tax returns, the exemption is gradually reduced and can ultimately be eliminated if alternative minimum taxable income (AMTI) on a joint return is between $1,047,200 and $1,505,600 ($1,036,800 and $1,490,400 for 2020). For single and head-of-household filers, the 2021 phase-out range is $523,600 to $818,000 of AMTI ($518,400 to $810,000 for 2020). The 2021 range for married people filing a separate return is $523,600 to $752,800 ($518,400 to $745,200 for 2020).

In addition, the 28% AMT tax rate doesn't kick on 2021 tax returns until you hit $199,900 of AMTI. That's an increase over the 2020 threshold, which was AMTI of $197,900 or more.

Use Form 6251 to calculate your AMT and file the form with your 2021 Form 1040.

Say goodbye to the tuition and fees deduction, which was worth up to $4,000 per year. It was repealed starting with the 2021 tax year.

On the bright side, the phase-out thresholds for the lifetime learning credit were increased. They're now the same as the phase-out amounts for the American Opportunity credit. So, beginning with 2021 tax returns, the lifetime learning credit is gradually reduced to zero for joint filers with a modified AGI from $160,000 to $180,000 ($118,000 to $138,000 for 2020) and single filers with a modified AGI between $80,000 to $90,000 ($59,000 and $69,000 for 2020). If you're claiming either the lifetime learning credit or the American Opportunity credit, you must first complete Form 8863 and then attach it to your 1040 form.

The phase-out ranges are also higher in 2021 for the exclusion of interest on Series EE and I savings bonds redeemed to help pay for tuition and fees for college, graduate school, or vocational school. For 2021 tax returns, the exclusion starts to phase out for joint filers with a modified AGI exceeding $124,800 and for other people with a modified AGI of $83,200 or more ($123,550 and $82,350, respectively, for 2020). The exclusion is totally phased-out for joint filers with a modified AGI of $154,800 or more and for other taxpayers with a modified AGI of at least $98,200 ($153,550 and $97,350, respectively, for 2020). You must compete Form 8815 to claim the exclusion and then report the exclusion amount on Line 3 of Schedule B.

The recovery rebate credit is back, but with one important change. As you may recall, this credit made its first appearance on the 2020 Form 1040 and was available for people who didn't receive a first or second stimulus check, or who didn't receive the full stimulus check amount they were entitled to.

For 2021 tax returns, the credit is for people who didn't receive a third stimulus check (or didn't receive the full amount). Those payments were for up to $1,400, plus an additional $1,400 for each dependent in your family. Similar to the monthly child tax credit payments the IRS sent last year, your third stimulus check was an advance payment of the recovery rebate credit. As a result, when you file your 2021 return, you must reduce the recovery rebate credit you're entitled to claim by the amount of your third stimulus check. (The IRS will send you a Letter 6475 showing the amount of your third stimulus check.) For most people, your third stimulus check payment will equal the 2021 recovery rebate credit allowed. If that's the case for you, the credit will be reduced to zero. But if your third stimulus check was less than the credit, your recovery rebate credit will equal the difference. And what if your third stimulus check was more than your 2021 recovery rebate credit? You get to keep the difference!

Use our Third Stimulus Check Calculator to see you how large your third stimulus check should have been.

Two tax breaks that encourage saving for retirement were tweaked for the 2021 tax year. In both cases, the changes are the result of annual adjustments for inflation.

The first retirement-related change for 2021 tax returns is to the deduction for contributions to a traditional IRA. If either you or your spouse was covered by an employer retirement plan, your IRA deduction may be reduced (potentially to zero), depending on your filing status and income. The income levels that trigger a reduction for 2021 returns have been adjusted. For married couples filing a joint return, the deduction is gradually phased out if you're modified AGI is between $105,000 and $125,000 (between $104,000 and $124,000 for 2020 returns). For single and head-of-household filers, the phase-out range is from $66,000 to $76,000 ($65,000 to $75,000 for 2020).

If only one spouse is covered by a retirement plan at work, the deduction is reduced if the couple's modified AGI exceeds $198,000, and it's totally eliminated if their modified AGI hits $208,000 ($196,000 and $206,000, respectively, for 2020). (NOTE: If you made any nondeductible contributions to a traditional IRA for 2021, report them on Form 8606.)

The second change is to the "Saver's Credit," which encourages lower- and middle-income people to save for retirement. The credit is allowed for either 10%, 20%, or 50% of the first $2,000 ($4,000 for joint filers) you contribute to retirement accounts, depending on your filing status and income. The lower your income, the higher the percentage you can use to calculate the credit. For 2021 tax returns, single filers, married people filing a separate return, and qualified widow(er)s can claim a 50% credit if their AGI is $19,750 or less ($19,500 for 2020). They can claim a 20% credit if their AGI is from $19,751 to $21,500 ($19,501 to $21,250 for 2020), and the 10% credit is available if their AGI is from $21,501 to $33,000 ($21,251 to $32,500).

For married couples filing a joint return, the 50% credit is available if their AGI doesn't exceed $39,500 ($39,000 for 2020), the 20% credit is available if their AGI is from $39,501 to $43,000 ($39,001 to $42,500 for 2020), and the 10% credit is available if their AGI is from $43,001 to $66,000 ($42,501 to $65,000 for 2020).

The 50% credit can be claimed by head-of-household filers with an AGI of $29,625 or less ($29,250 for 2020), while they can claim the 20% credit with an AGI from $29,626 to $32,250 ($29,251 to $31,875 for 2020) and the 10% credit with an AGI from $32,251 to $49,500 ($31,876 to $48,750 for 2020).

To claim the credit, complete Form 8880 and send it to the IRS with your 1040 form.

For 2021 tax returns, standard mileage rate for business driving is 56¢ a mile – that's less than the 57.5¢ per mile for 2020. The rate for medical travel and military moves also dropped for the 2021 tax year from 17¢ to 16¢ a mile.

The mileage rate for charitable driving doesn't change from year-to-year. So, it stayed put at 14¢ a mile for 2021 returns.

Self-employed taxpayers can claim some tax breaks that other people can't. And some of those tax breaks are tweaked for 2021 tax returns. For instance, the sick or family leave credits self-employed people could claim on their 2020 tax return if they missed work for Covid-related reasons was extended for 2021 – but not for the full year. For 2021 returns, the credits are only available for qualified absences through September 30, 2021. In addition, the family leave credit can only be claimed for 50 days missed from January 1 to March 31, 2021, but it can be claimed for up to 60 days missed from April 1 to September 30, 2021. Self-employed people should use Form 7202 to calculate the sick and family leave credits they're entitled to claim on their 2021 1040 form.

The income threshold for limits on the 20% deduction for qualified business income were also adjusted for the 2021 tax year. The taxable income threshold is $329,800 for married couples filing a joint return, $164,925 for married people filing a separate return, and $164,900 for all others ($326,600 for joint filers and $163,300 for all others for 2020 returns). Use Form 8995 or Form 8995-A to figure your qualified business income deduction.

Self-employed people who are wining and dining clients can take advantage of another perk for both the 2021 and 2022 tax years. The deduction for business meals at a restaurant is increased from 50% to 100%. This deduction is claimed on Line 24b of Schedule C.

If a self-employed person had a Paycheck Protection Program (PPP) loan forgiven in 2021, the canceled debt is not taxable income and doesn't have to be reported on Form 1040. However, if you have tax-exempt income resulting from the discharge of a PPP loan last year, you must attach a statement to your 2021 tax return that includes certain information related to your PPP loan (see the instructions to Form 1040 for details). You should also write "RP2021-48" at the top of the statement.

Unfortunately, there are also a couple of negative changes that may increase the 2021 tax bill for some self-employed taxpayers. First, none of the self-employment taxes owed for the 2021 tax year can be deferred as they could on 2020 returns. In fact, half of any 2020 tax deferred had to be paid by the end of 2021, while the rest is due by the end of 2022. Second, the cap on deductible business losses is back after being suspended for the 2018 to 2020 tax years. For 2021 tax returns, the inflation-adjusted limit is $262,000 ($524,000 for married couples filing a joint return). Form 461 is used to calculate a self-employed taxpayer's limitation on business losses.

The $10,200 exemption for unemployment compensation in effect for the 2020 tax year is no more. Under the American Rescue Plan Act, which authorized the exemption for families with a federal AGI less than $150,000, the tax break was for one year only.

As a result, any unemployment compensation you received last year will be fully taxed on your 2021 tax return. Report the benefits on Line 7 of Schedule 1.

If you're paying for long-term care insurance, you might be able to deduct a portion of your premiums – and the deduction maximums, which are based on age, are higher for the 2021 tax year. Taxpayers age 71 or older can deduct up to $5,640 per person on their 2021 tax return ($5,430 for 2020). If you're 61 to 70 years old, you can deduct as much as $4,520 of your premiums ($4,350 for 2020). Anyone 51 to 60 years old can write-off up to $1,690 ($1,630 for 2020). For people 41 to 50 years of age, the max is $850 ($810 for 2020). And, finally, the maximum deduction is $450 if you're 40 or younger ($430 for 2020).

Long-term care insurance premiums are only deductible as medical expenses for most people, which means they must itemize deductions on Schedule A to claim the tax break. However, self-employed people can deduct their premiums on Line 17 of Schedule 1 without having to itemize.

Before the 2021 tax year, canceled or forgiven student loan debt was considered taxable income. However, from 2021 to 2025, most canceled student loan debt that was incurred for a post-secondary education is tax-free. Therefore, you shouldn't report qualified student loan debt that was canceled last year on Line 8c of Schedule 1.

The IRS has also told lenders and student loan servicer providers not to file Form 1099-C or submit payee statements for qualified student loan debt that's discharged, canceled, or otherwise forgiven through 2025. So, if you do receive a 1099-C form reporting discharged student loan debt that you believe is not taxable, contact the lender or loan service provider that issued the form and ask them to send a corrected form.

Americans working abroad may be able to exclude all or a portion of their foreign-earned income from taxable income on their U.S. tax return. For 2021 returns, the maximum exclusion amount is $1,100 higher than it was for the 2020 tax year – it jumped from $107,600 to $108,700.

In addition to the foreign earned income exclusion, taxpayers living abroad may also be able to claim an exclusion or deduction for their foreign housing. For the 2021 tax year, the maximum foreign housing exclusion is generally $15,218 ($15,064 for 2020), although it can be higher in certain high-cost areas.

Use Form 2555 to figure both your foreign earned income exclusion and foreign housing exclusion/deduction.

When you start a new job, one of the first documents you’ll face is Form W-4. This certificate tells your employer how much federal income tax to take out of your paycheck and send to the IRS.

But for 2026, the W-4 is doing more heavy lifting than usual. Thanks to the 2025 Trump tax bill, the form now includes specific provisions for tips and overtime that could significantly boost your take-home pay. Plus, taxpayers 65 and older may be eligible for the new "bonus" deduction, which can also be included in your tax withholding.

We’ll break down what this document is and list 13 key items you need to know to navigate the updated form in 2026.

What is a W-4? 

The IRS Form W-4, Employee's Withholding Certificate, is a tax document you fill out so your employer knows how much tax to withhold from every paycheck.* By providing your employer with details on expected filing status, family income from other jobs, and the number of dependents, you ensure that the amount you receive on payday is as accurate as possible.

*Note: Self-employed individuals and those with other tax situations may also use the W-4 form to calculate withholding; more on that below.

You can correct a W-4 form at any time, but you are not required to file one each year. If you are happy with your current tax withholding, you can leave your current Form W-4 in effect with your employer.

However, you must complete a W-4 form to….

Start a new job. This is the only way your new employer will know how much federal income tax to withhold from your wages.

“Correct” a W-4. If you want to adjust the amount of tax your current employer withholds from your paycheck.

Ideally, you want your annual withholding and tax liability for the year to be close so that you don't owe a lot or get back a lot when you file your return. (Remember, a large tax refund means you gave the IRS an interest-free loan).

If your tax withholding is off track, submitting a new W-4 can help. That is especially important if you have a significant change in your life, such as getting married, having a child, or buying a home.

The W-4 form can be relatively easy if you only have one job, and your taxes are simple. “Simple” means:

• You are not filing a joint return with a working spouse.
• You don’t have dependents.
• You’re not itemizing or claiming deductions other than the standard deduction.
• You’re not claiming any tax credits.
• You don’t have non-employment income.

If all those are true, you only have to provide your name, address, Social Security number, and filing status. Then you must sign and date the W-4 form.

Your employer will compute your tax withholding based on the standard deduction and income tax rates for your filing status, with no other adjustments.

If your taxes are more complicated, completing a W-4 form will probably take you more time, and you may need your prior year’s filing.

For example, when new hires complete a W-4 form, they may need to look up information from their last tax return to determine total deductions from the previous tax year, the child tax credit, and the amount of non-wage income they reported.

Having multiple jobs or a working spouse can affect the tax withheld from your wages. This is because, as income rises, so do tax rates. But only one standard deduction can be claimed on each tax return (regardless of the number of jobs).

As a result of this, you’ll see more money being withheld from the combined pay for all the jobs your household has (than would be withheld if each job were considered by itself).

This may cause you to make adjustments to your withholding to avoid owing additional tax and perhaps penalties when filing your tax return.

Fortunately, the W-4 form has a section where you can provide information about additional jobs and working spouses so that your withholding can be adjusted accordingly.

Note: The IRS recommends completing a W-4 for all your jobs to get the most accurate withholding. (By "accurate," the agency means having total withholding as close to your expected tax liability as possible.)

The W-4 form allows you to adjust your withholding to account for certain tax credits and deductions. You can add these amounts by filling out the provided lines on the W-4 form:

Step 3. Workers can factor in the child tax credit and the credit for other dependents on this step of the form. You can also include estimates for other tax credits, such as education credits or foreign tax credits.

Line 4(b). For deductions, it's important to note that you should only enter deductions other than the basic standard deduction. So, you can include itemized deductions on this line. If you take the standard deduction, you can also include other deductions, such as those for student loan interest and IRAs.

If you have multiple jobs or a working spouse, complete Step 3 and Line 4(b) on only one W-4 form. It should be the form for the highest-paying job to get the most accurate withholding.

Including tax deductions and credits on the form will decrease the amount of tax withheld, which will increase the amount of your paycheck and reduce any refund you may get when you file your tax return.

To get the most accurate withholding, you can use the IRS's Tax Withholding Estimator to help you fill out the W-4 form. You will also want to use this tool for a variety of reasons:

• If you expect to work only part of the year.
• Have dividend income or capital gains subject to additional taxes (e.g., the additional Medicare tax).
• Have self-employment income.

You will also want a few things by your side before you start using the tool — you'll need them as a source of information.

For example, have your most recent federal income tax return handy. You will also need your most recent pay stub (your spouse's, too, if you're married).

Collect information for other sources of income as well, such as invoices, statements, and 1099 forms.

If you receive taxable income that isn't from wages, like interest, dividends, or distributions from a traditional IRA, you can have your employer withhold tax from your paycheck to cover the extra taxes.

Just put the estimated total amount of this income for the year on Line 4(a) of your W-4 form, and your employer will calculate the proper withholding amount for each pay period. Don't include income from a side gig on Line 4(a).

For self-employment income where you still need to pay your taxes — keep reading! We’ll cover more information on how to get your boss to withhold tax from your regular paycheck.

Suppose you have a side job as an independent contractor (i.e., not an "employee"). In that case, you can use the W-4 form to have extra taxes withheld from your regular job's paycheck to cover your side job, too (instead of making estimated tax payments for your second job).

To do this, you can follow these steps:

• Pay self-employment taxes through withholding from your regular job wages.
• Don’t include self-employment income as "other income" on Line 4(a) — that line is only for income, not from a job.
• Be sure to use the IRS's Tax Withholding Estimator tool if you need a preview of your withholding.

You can claim an exemption from withholding on a W-4 form. However, you should make sure you qualify.

You qualify for an exemption in 2026 if:

• You had no federal income tax liability in 2025, AND
• You expect no federal income tax liability in 2026 (if your total expected income for 2026 is less than the standard deduction amount for your filing status, then you satisfy the second requirement).

Starting in tax year 2026, taxpayers may now claim an exemption by checking a formal box on the W-4 and signing the certification. The deadline to claim one is mid-February of each year.

Note: If you claim an exemption, you will not have income tax withheld from your paycheck, and you may owe taxes when you file your return. You might be hit with an underpayment penalty. Additionally, an exemption is good for only one year, so you must reclaim it yearly.

If you wish, you can adjust your W-4 form to generate a larger tax refund (or refund in general).

Although the tax withholding system aims to produce the most accurate withholding, you can add an extra amount on Line 4(c) for "extra withholding" to increase your income tax withholding and reduce your paycheck. That will either increase your tax refund or decrease any tax you owe when you file your tax return.

If you have a specific refund amount, let the IRS's Tax Withholding Estimator tell you how much to put down on Line 4(c). You can even download a W-4 form with the appropriate amount preloaded on Line 4(c).

While filling out a W-4 can be straightforward, accidents may occur. For instance, you could:

• Misremember claiming a credit on last year’s tax filing and accidentally enter invalid data on this year’s.
• Mistakenly fill out inapplicable sections of the W-4 (you’re only required to complete sections one and five – all others depend on your individual tax situation).

However, some common mistakes for W-4 forms happen at the employer level.

Employers should never fill out your form for you. Nor should they tell you how to enter your information. Your employer may also miskey information when typing up your paper form, or accept incomplete W-4s accidentally.

If you have any doubts about how your W-4 was filed, email your payroll department and ask to see a copy of your withholding certificate. You can also follow up with them on any questions you may have.

If you're a tipped employee or someone who typically works overtime, you'll definitely want to revisit your Form W-4 this year. That's because the 2025 Trump tax bill introduced new temporary IRS deductions:

• The "no tax on tips" deduction is for tipped employees who receive "voluntary cash and charge tips." The tax break is worth up to $25,000, though certain income rules and other eligibility requirements apply.
• The overtime tax deduction is for employees who work more than 40 hours a week and is also worth up to $25,000 (income rules and other eligibility requirements apply).
• The "bonus deduction" for older adults is worth up to $6,000 per qualifying individual.
• The car loan interest deduction is for those who buy a new, qualifying vehicle during the year, worth up to $10,000.

Specific lines have been added to the 2026 W-4 to account for these deductions. So if you qualify for one (or more) of these federal tax breaks this year, you may want to adjust your withholding. Otherwise, you could be giving the federal government an interest-free loan until tax filing time.

Note: Only specific jobs qualify for the overtime and tip tax deductions. See IRS guidance for more information.

It’s important to note that you may be subject to more than just federal withholdings. State W-4s can apply to your taxes and depend on your state’s rules for tax withholding.

For example, New Mexico doesn’t have a state-specific W-4, so the federal withholding form is used for state tax collections. Other states, like Alabama and Oklahoma, have their own withholding tax forms.

Of course, states with no income tax don’t have a withholding certificate at all. Visit your state’s Department of Taxation website to see if you’re required to complete one, or ask your employer for more information.

Read More

• Types of Income the IRS Doesn't Tax
• What is Taxable Income?
• How to Lower Your Tax Bill Next Year

Fixing errors on your tax return will be less of a hassle going forward. For the first time, taxpayers are now able to file Form 1040X, the document used to amend tax returns, electronically with commercial tax-filing software.

Taxpayers amend their federal tax returns for all kinds of reasons—for failing to report some income, for example, or because of an overlooked deduction that would have lowered their tax bill. But in the past, you had to submit the form by mail. You could use tax software to fill out the form but had to print it out and mail it in.

"E-filing has been one of the great success stories of the IRS, and more than 90% of taxpayers use it routinely," IRS Commissioner Chuck Rettig said in a statement. "But the big hurdle that's been remaining for years is to convert amended returns into this electronic process."

While taxpayers generally have up to three years from the date they filed their original return (or two years from the date they paid any tax due) to amend a return, e-filing will initially be limited to 2019 tax returns, the IRS says. If you want to amend an earlier return on Form 1040X, you'll still have to print it out and mail it in.

The IRS will send interest payments to about 13.9 million taxpayers this week. The average payment will be about $18. You can expect a payment if you filed a 2019 return before this year's July 15 deadline and either received a refund in the past three months or will receive a refund. Most interest payments will be sent separately from tax refund payments.

Normally, the IRS only adds interest to refunds issued more than 45 days after the return due date. The typical tax return due date is April 15. However, because of the coronavirus pandemic, this year's filing deadline was pushed back to July 15. The change is considered a disaster-related postponement, which means the IRS is required by law to pay interest calculated from the original April 15 filing deadline for anyone who files their return by the postponed deadline. This refund interest requirement only applies to individual income tax filers – businesses are not eligible.

How Will the Payment Be Made?

For about 12 million people, the interest payment will be directly deposited into the same bank account that their tax refund was deposited. Everyone else will receive a paper check. A notation on the check saying "INT Amount" will identify it as a refund interest payment and indicate the interest amount.

How the Interest Amount is Calculated

Interest is paid at rates set by law. The rate for the second quarter ending June 30 was 5%. The rate for the third quarter starting July 1 dropped to 3%. Interest is compounded daily.

Where the calculation period spans more than one quarter, a blended rate consisting of the number of days falling in each calendar quarter applies. No interest will be added to any refund issued before the original April 15 deadline.

Taxability of Interest Payments

If you receive one of the IRS interest payments, you must report the interest as taxable income on your 2020 federal income tax return that you'll file next year. In January 2021, the IRS will send a Form 1099-INT to anyone who receives interest totaling at least $10.

The IRS has some bad news if you were hoping for more time to file your tax return. Due to COVID-19, the original due date for filing 2019 returns was already postponed from April 15 to July 15, 2020. However, several groups were pressuring the IRS to allow even more time to file returns and pay taxes this year. But the IRS shot down that idea and announced that there will not be another delay. So, you still only have until July 15 to get your taxes done and pay any tax due.

If you can't meet the July 15 deadline for whatever reason, you can request an automatic extension of time to file until October 15 by filing Form 4868 by July 15. While this will give you more time to file your return, it does not give you more time to pay any tax due. You still have to estimate your tax liability on the extension form and pay any amount due by July 15 to avoid penalties and interest.

You can also get an extension by paying all or part of the tax you owe using Direct Pay, the Electronic Federal Tax Payment System (EFTPS), or a credit or debit card. Make sure you indicate that the payment is for an extension. When getting an extension by making a payment, you don't have to file a separate extension form and will receive a confirmation number for your records.

If you're facing hardships, including those related to the coronavirus pandemic, and can't pay the tax you owe, pay what they can now and look into the various IRS payment options for the remaining balance. They include setting up a payment plan, an "offer in compromise," or requesting a temporary collection delay. Another option is to take out a loan to pay the taxes due, since loan costs could be lower than the combined IRS interest and penalties.

Finally, don't forget about your state tax return. The due date for your state return could be different than the July 15 deadline for federal returns. Check with your state tax agency to double check the tax due date where you live.