1099-K | The Basics & What’s New
November 21, 2023 Update
The IRS has delayed the implementation of the new reporting threshold for third-party payment platforms and increased the threshold from $600 to $5,000. Taxpayers above this threshold will receive a Form 1099-K at the beginning of 2025.
Learn more about the update on the IRS website.
With the ever-growing amount of people starting their own businesses or taking on a side hustle to earn some extra cash, it’s important to understand the tax obligations for these various streams of income. The IRS is making changes to help self-employed individuals obtain the information needed to report and pay taxes.
If you’re a small business owner, contractor, freelancer, or gig economy worker and have never received a tax form for income earned through these methods, that might change. Updates to the threshold requirements for Form 1099-K mean that more people will receive this form than ever before. In this blog post, we’ll go over what a 1099-K is and what’s changed for this year.
What is Form 1099-K?
Form 1099-K, Payment Card and Third Party Network Transactions, is a tax form that reports information on payments you receive from card transactions and third-party payment websites and apps. For example, you may receive a 1099-K if you receive payments for goods and services through:
Debit and credit cards
Online payment services like PayPal and Venmo
Online selling platforms like eBay and Etsy
Freelancing platforms like Upwork and Fiverr
Ridesharing apps like Uber and Lyft
You should receive a 1099-K for every platform where you received more than $5,000.
What’s New with Form 1099-K?
Many people will be receiving a 1099-K for the first time because third-party payment processors will now have to send 1099-Ks to those who earned more than $5,000 through their platform. This affects payment processors such as PayPal and Venmo and online platforms such as eBay, Etsy, and Uber. Previously, third-payment payment processors were only required to issue a 1099-K if you earned more than $20,000 or had a minimum of 200 transactions.
As you can see, the threshold has been significantly lowered, which means a lot more people will be receiving this form. These changes take effect beginning January 1, 2025, so you can expect to receive a 1099-K in 2024 so you can report the income on your tax return.
Important Notes
The threshold only applies to payments for goods and services, not payments for personal reasons. For example, if a friend pays you back for dinner through Venmo, this will not count toward your $5000 threshold. Just make sure to keep your personal and business transactions separate!
The updated $5,000 threshold is being used to phase-in to the implementation of the $600 reporting threshold.
Third-party payment processors may contact you for sensitive information, such as your Social Security number, so they can send you a 1099-K. If you receive one of these messages, make sure the request is legitimate before providing your information.
You are required to report all self-employment income, even if you didn’t receive a 1099-K.
Simplify Your Taxes
Make tax season easier by filing with a professional. Our tax preparers at Northside Tax Service have years of experience filing taxes, from simple W-2 income to more complex self-employment and rental income. We also offer tax planning services to help you stay on top of your tax obligations and plan for the future. Give us a call at (360) 922-0235 to get started!
Disclaimer: This material is prepared for informational purposes only, and is not tax advice. Please speak with a tax professional or view the resources below to see how this information may apply to you.
