As the tax season approaches, many Americans are busy organizing their paperwork, and some might encounter a new tax form this year, according to the National Taxpayer Advocate. This form relates to business payments received via different platforms.
For 2024, if you’ve had business dealings totaling more than $5,000 through apps like PayPal or Venmo, or if you’ve been active on online marketplaces such as eBay, you might be receiving a Form 1099-K. This form informs the IRS about your income from such transactions.
The threshold for reporting these transactions has significantly decreased from the 2023 figure, which required more than 200 transactions or amounts exceeding $20,000. For 2025, this threshold will further drop to $2,500, irrespective of the number of transactions, and from 2026 onward, any amount over $600 will need reporting, based on guidance the IRS released in November.
Exploring more within Personal Finance, it’s essential to have the right forms on your tax return to avoid audits. Also, January 2025’s inflation details are neatly summarized in a chart, and with one in three Americans feeling anxious about layoffs, there are tips available to tackle such worries.
The $600 reporting threshold was initially introduced by 2021’s American Rescue Plan Act. However, the IRS opted to delay this change after bipartisan concerns from lawmakers and objections from tax professionals.
In 2023, the IRS announced a phased implementation of these limits. This approach aims to "prevent issues for taxpayers, tax professionals, and others," as former IRS Commissioner Danny Werfel noted.
How to handle Form 1099-K on your tax return
With the threshold for 1099-K reporting being lower in 2024, "the nature of taxable income hasn’t changed," explained April Walker, lead manager for tax practice and ethics at the American Institute of CPAs. "It’s simply a tool for reporting," she added.
This year, you might find yourself receiving Form 1099-K if you’ve been selling items like cars, furniture, clothes, or concert tickets through payment apps. Services compensated through these platforms might also trigger this form. Nonetheless, the IRS clarifies that "personal payments" between family and friends are not subject to 1099-K reporting.
If you profit from selling something—meaning you sell it for more than you paid—you’re required to declare that gain using Form 8949 and Schedule D. While losses on sold items aren’t deductible, you should "zero out" gross income on Schedule 1 to avoid paying taxes on it, as per IRS instructions. This strategy also applies if you receive a Form 1099-K for non-business-related payments.
April Walker advises maintaining records, like receipts, when deducting any of these payments on Schedule 1, to verify that the income doesn’t require taxation.
