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.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
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
-
Original Medicare vs Medicare Advantage Quiz: Which is Right for You?Quiz Take this quick quiz to discover your "Medicare Personality Type" and learn whether you are a Traditionalist, or a Bundler.
-
Ask the Editor: Capital Gains and Tax PlanningAsk the Editor In this week's Ask the Editor Q&A, Joy Taylor answers questions on capital gains tax rates and end-of-year tax planning
-
Time Is Running Out to Make the Best Tax Moves for 2025Don't wait until January — investors, including those with a high net worth, can snag big tax savings for 2025 (and 2026) with these strategies.
-
Are You Middle-Class? Here's The Most Tax-Friendly State For Your FamilyTax Tips We found the state with no income tax, low property tax bills, and exemptions on groceries and medicine.
-
Social Security Benefits Quiz : Do You Know the IRS Tax Rules?Quiz Social Security benefits often come with confusing IRS tax rules that can trip up financially savvy retirees and near-retirees.
-
How Are I Bonds Taxed? 8 Common Situations to KnowBonds Series I U.S. savings bonds are a popular investment, but the federal income tax consequences are anything but straightforward.
-
Capital Gains Tax Quiz: How Well Do You Really Know IRS Investment Tax Rules?Quiz Take our capital gains tax quiz to test your investment taxes knowledge. Learn about loss rules, holding periods, and tax incentives that could impact your savings.
-
6 Tax Reasons to Convert Your IRA to a Roth (and When You Shouldn't)Retirement Taxes Here’s how converting your traditional retirement account to a Roth IRA can boost your nest egg — but avoid these costly scenarios.
-
Could Tax Savings Make a 50-Year Mortgage Worth It?Buying a Home The 50-year mortgage proposal by Trump aims to address the housing affordability crisis with lower monthly mortgage payments. But what does that mean for your taxes?
-
3 Ways High-Income Earners Can Maximize Their Charitable Donations in 2025Tax Deductions New charitable giving tax rules will soon lower your deduction for donations to charity — here’s what you should do now.
-
An HSA Sounds Great for Taxes: Here’s Why It Might Not Be Right for YouHealth Savings Even with the promise of ‘triple tax benefits,’ a health savings account might not be the best health plan option for everyone.
