IRS Form 1099-K gets a lot of attention each tax season.
That’s partly because the 1099-K form reports certain payments from payment cards and third-party network transactions. Millions of people use third-party networks (think Venmo, PayPal, Cash App, Stripe, etc.) for business and personal transactions.
However, the 1099-K received attention even before the current tax season because of a new $600 reporting threshold for the form delayed several times by the IRS.
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So, it’s important to know what the 1099-K form is and what to do when you do (or don’t) receive one.
What a 1099-K form is used for
An IRS 1099-K form is an IRS information reporting form.
Payment networks and other providers use the form to report certain transactions from payment cards and through various payment networks.
Third-party payment networks can include a range of providers you’re likely familiar with like Venmo, PayPal, Stripe, and CashApp. If you sell on Etsy, eBay, Depop, or other similar sites, you probably process payments through third-party networks.
1099-K threshold: What is 1099-K income?
Payment networks don’t have to report all transactions on 1099-K forms. There is a reporting threshold that triggers a 1099-K.
For your 2024 tax return, that threshold is $5,000. That means that if you received more than $5,000 in payments for goods and services through a payment network, you will likely receive a 1099-K in early 2025 form from that payment network.
- However, it's important to note that the 1099-K is supposed to report transactions for goods and services.
- Personal transactions (e.g., sending money to friends or family not in exchange for goods or services) should not be reported on the 1099-K form.
Is a 1099-K required for $600?
This new, much lower threshold for the 1099-K (also known as the $600 rule) has caused a lot of confusion and means that more people who have never received a 1099-K could now receive one.
So, for example, if you sold a piece of furniture on eBay for $650 and were paid through a third-party payment network, and that’s your only such transaction, you were supposed to receive a 1099-K. A few years ago, that $650 sale would be far too small to trigger the IRS reporting form.
However, the IRs has delayed the so-called $600 rule to at least 2026. For now, the applicable reporting threshold is $,5,000.
For more information, see New IRS 1099-K Changes: Key Updates for 2024.
What’s the difference between 1099-NEC and 1099-K?
The IRS 1099-NEC form is used instead of the 1099-MISC. (The form is used by businesses to report non-employee compensation.)
So generally, when you’re self-employed, businesses typically issue a 1099-NEC when you receive a certain amount of money from them.
The threshold for the 1099-NEC reporting form is at least $600. (That threshold is similar to the new, 2023 1099-K threshold. But, the 1099-K focuses on payments received through transactions on payment cards and through third-party payment networks.)
Money reported on a 1099-NEC could be received in various forms including, for example, rents, prizes, and awards.
But similar to the 1099-K, even if you don’t receive a 1099-NEC when you know you received taxable income from a business, you must report that income on your federal return. If you’re unsure how to report self-employment income, consult a professional before you file.
How does a 1099-K affect your taxes?
Whether you receive a 1099-K or not, the IRS expects you to report your taxable income.
Third-party payment networks you had transactions with that trigger the reporting threshold, will send a copy of the form to you and the IRS.
So, when you receive a 1099-K, you should keep it with your tax documents and make sure that the information on the form matches your records.
- Double-check that the income and other information on the form is accurate. If the 1099-K doesn’t belong to you, has an incorrect taxpayer identification number, or has incorrect payment transactions or amounts, contact the payment network that sent you the form.
- Their information should appear on the lower left of the 1099-K.
- They may be able to correct the form. If they send you a corrected version, keep that with any other correspondence from the network, in your files.
Keeping good records and documentation is the best way to support any deductions claimed and income reported on your federal tax return.
Your claimed tax deductions and credits, and income, taken together, will ultimately determine how much tax you pay overall and whether you receive a tax refund.
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