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.
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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?
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