CNN
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Attention any self-employed person, independent contractor, business owner, renter, or simply hobbyist who occasionally sells their creations: if you accept income related to your business through a payment app or online marketplace like Venmo, CashApp, Airbnb and Etsy, In January, you may start receiving 1099-K tax forms from the platforms you do business on.
You may get more than you are used to, especially if you have never received any on the platforms before. And you’ll get even more in 2025 and beyond.
Here’s why and what you need to know before filing your 2024 taxes next year.
A rule change that significantly increases the reporting responsibility of third-party payment platforms to issue 1099-Ks to users was supposed to take effect in 2021. But the IRS delayed its implementation from 2021 to 2023 and decided to only partially implement it. for 2024 and 2025.
The original rule required a third-party platform to send you a 1099-K if you had more than 200 business transactions in a given year on the platform, and only if those combined transactions totaled more than $20,000. Translation: Few people were affected.
The rule change will affect many more people, however, because it both eliminates the number of transactions threshold and significantly lowers the dollar limit threshold to more than $600 for all transactions combined. The IRS estimated that this change could result in “44 million 1099-K forms being sent to many taxpayers who would not expect them.”
But not yet.
Last month, the The IRS has issued an official notice that for calendar year 2024, the dollar limit threshold would drop to $5,000 and further announced that the threshold for 2025 would be $2,500. Not until 2026 is the rule expected to come into full effect at $600, five years later than originally planned.
Even at the $5,000 level, companies expect to issue 150% more 1099-K forms than is typical, said Wendy Walker, vice president of regulatory affairs at Sovos, a compliance software provider. commercial which, among other things, helps companies to report 1099.
“So if a customer (issued) 10,000 forms at the (old) threshold, that customer reports about 25,000 forms at the $5,000 threshold,” Walker said.
For this year, if you made more than $5,000 in gross business transactions on a given app or platform, then you, the IRS, and your state tax department should all receive a 1099-K reflecting that .
(If you live in states like Maryland, Virginia, Massachusetts, or Vermont, which already have a $600 reporting threshold, none of this may be new to you.)
And the IRS notes in its Guide 1099-K that some businesses may choose to send a 1099-K to users whose business transactions are less than $5,000.
A commercial transaction is defined as payment on this platform for a good or service, including tips, as well as rent for a property. This does not include personal payments you may receive from friends or family.
Some things won’t change, like your tax obligations and the risk of errors.
Keep in mind that the rule change does not change your tax obligations. You have always been required to report all your taxable business transactions. It’s just that from now on, more third-party declarations will be sent to the tax authorities.
Familiarize yourself with how the platforms you do business on plan to manage their 1099-K reporting and what they may need from you to facilitate this. They can, like Venmo And Etsyhave a page dedicated to the problem.
If you get a 1099-K error (for example, the form reflects personal monetary transactions), check this IRS document for some tips on how to correct the situation.
But, generally speaking, the IRS expects you to report information from all 1099-Ks you receive on your 2024 return and then adjust any errors either on that return or via an amended return after submitting your original before the filing deadline (what you should do to avoid penalties if you owe money).
“If (the 1099-K) is not business income, or if it involves personal transfers of money between family and friends, or if it involves the sale of personal items at a loss, it must still be declared – that is to say accounted for. said David Mellem, partner at Ashwaubenon Tax Professionals.
So check the 1099-Ks sent to you to make sure they are accurate. If not, ask the issuer to send you a corrected 1099-K. Hopefully they can do this before your official filing deadline so you can include it on your return with the other 1099s you received.