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.
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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.
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