The IRS has changed its requirements for receiving Form 1099-K from payment apps several times in the past two years. The result is confusion not only for the potential recipient but also for the payer.
Many Americans have side hustles or sell goods from their hobbies online. How many of these will need a 1099-K? What is 1099-K, and what are the rules regarding it?
Who Receives a 1099-K Form?
According to the IRS, a 1099-K form is an informational report of goods and services sold during the year through payment apps or online marketplaces. These online platforms are also called third-party settlement organizations (TPSOs).These entities are required by law to report your income to the IRS and are also required to send you the form by Jan. 31, but some payers make the form available online.
The payments to you can originate from:
- car-sharing or ride-hailing platforms
- payment apps (e.g., PayPal, Venmo)
- freelance marketplaces
- crowdfunding
- craft or maker marketplaces (e.g., Etsy, eBay)
- auction sites
- online community marketplaces (e.g., Facebook Marketplace)
- ticket exchange or resale sites
Form 1099-K Reporting Threshold
The 2021 American Rescue Plan introduced a rule that established a new reporting threshold for Form 1099-K. According to the IRS, the amount applied to tax year 2022 and prior years was $20,000 or more and 200 transactions a year. The new threshold was established as $600 or more. This amount was originally supposed to apply to tax year 2023.However, payment apps and others complained they weren’t technically ready for such a quick transition. Taxpayers also voiced complaints. The threshold was then postponed. Instead, the IRS gradually phased the threshold amount over three years. The new threshold amounts are $5,000 in 2024, $2,500 in 2025, and $600 in 2026.
Although the 1099-K form has different thresholds, taxpayers are still required to report all income on tax returns. This applies to goods sold or services provided.
Does This Increase Taxes?
Whether this will increase your taxes depends on how you have been reporting your taxable income. The tax laws haven’t changed. If you’ve been reporting your income correctly, the amount should be roughly the same. But if you haven’t been reporting the taxable income, you may have a bump in your tax liability.Reporting 1099-K Transactions
For personal items or hobby items you sold, report that income on Schedule D or Schedule 1, respectively. But if you are self-employed, report your 1099-K, where you would typically report business income.
Remember that the 1099-K form will have your gross income. It’s up to you to subtract your expenses for tax purposes. You are taxed on your profit. That’s why it’s important to practice good bookkeeping.
Form 1099-K Misconceptions
There are some misconceptions surrounding the new 1099-K rules, including around gross versus net income and being a casual seller.Taxed on Net Income
When you receive a 1099-K form, it doesn’t automatically mean you'll owe income tax on the gross sales reported. Remember, you are only taxed on your net income. A 1099-K only shows your gross receipts. That means if you sold an item at a net loss against its original cost, you should report it as a loss. Ensure to consult a tax preparer so you don’t pay taxes on your losses.Casual Seller
Taxable income means any income from sales. It doesn’t matter if you’re a hobby seller, casual seller, or business. If you make a profit and you are over the threshold, you will receive a 1099-K. Even if you aren’t eligible to receive a 1099-K, you must still declare and pay income taxes.Personal Payments
The 1099-K reporting requirement only applies to those who have made a profit selling goods and services while receiving compensation through payment card transactions (debit or credit card) or by using third-party payment networks such as PayPal or Venmo.Those who only use these payment apps for personal transactions, such as between friends and family, don’t need to worry about a 1099-K form. Use the “friends and family” category on the app to avoid confusion.
Differences Between 1099-K, 1099-NEC, and 1099-MISC
There are three types of 1099 forms, and they can be confusing. Some of them overlap in information.- 1099-K: reports by online platforms, apps, or card processors such as Etsy, PayPal, Poshmark, eBay, or Venmo.
- 1099-NEC: reports fees, commissions, or any other compensation from a business to an individual who is not an employee; the individual could be an independent contractor or self-employed.
- 1099-MISC: reports miscellaneous items of income, including rent payments from businesses, royalties, prizes, and awards.
1099-K Can Be Confusing
Because the threshold keeps changing, some people may be unaware that they need a 1099-K form. But you needn’t stress out about it. The 1099-K form should be used as a guide to determine taxable income. It’s important to keep good records. You may want to discuss your situation with a tax preparer.The Epoch Times copyright © 2025. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
