1099-K tax rule change goes into effect for business transactions on payment apps and online marketplaces (partially)

CNN
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Note to anyone who’s a freelancer, independent contractor, business owner, rental property owner, or just a hobbyist who occasionally sells their creations: If you accept business-related income 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 with.

You may get more than you are used to getting, especially if you have never received from platforms before. And you’ll get even more in 2025 and beyond.

Here’s why and what you need to know before you file your 2024 taxes next year.

The rule change, which greatly increases the responsibility for notifying third-party payment platforms that issue 1099-Ks to users, was set to take effect in 2021. But the IRS delayed implementation from 2021 to 2023, and has decided to implement it only partially. For the years 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 on the platform in a given year, and those transactions combined totaled more than $20,000. Translation: Not many people were affected.

The rule change will affect many more people, however, because it eliminates the transaction amount threshold and significantly lowers the dollar limit threshold to more than $600 for all transactions. The IRS has estimated that the changes will result in “44 million 1099-K forms being sent to many taxpayers who would not expect to be sent.”

But not yet.

last month, The IRS issued an official notice He announced that the dollar ceiling would drop to $5,000 by the 2024 calendar year, and that the 2025 threshold would be $2,500. The rule is only scheduled to go into effect at $600 in 2026, five years later than originally planned.

Even at the $5,000 level, companies expect to issue 150 percent more 1099-K forms than usual, said Wendy Walker, vice president of regulatory affairs at Sovos, a software provider that helps businesses, including businesses. 1099 report.

“So if a customer was issuing 10,000 forms on the (old) portal, that customer will report about 25,000 forms on the $5,000 portal,” Walker said.

For this year, if you had more than $5,000 in gross business transactions on a particular app or platform, you, the IRS, and your state tax department should have received a 1099-K reflecting that.

(If you live in states like Maryland, Virginia, Massachusetts, or Vermont that already have a $600 reporting threshold, this may not be news to you).

And the IRS notices that 1099-K guide that some companies may send a 1099-K to users with business transactions of less than $5,000.

A business transaction is defined as a payment on that platform for a good or service, including advice, as well as the rental of property. It does not include personal payments you may receive from friends or family.

Some things won’t change, such as your tax liability and the potential for mistakes

Remember, the rule change does not change your tax obligations in any way. You have always been required to report all taxable business transactions. It’s just that now larger third-party reports will be sent to the tax authorities.

Find out how the platforms you do business with plan to handle their 1099-K reporting and what they need from you to make it easier. Maybe, like Venmo and Etsyhave a page dedicated to the topic.

If you get a 1099-K due to errors, for example, the form reflects cash transactions that were personal – check This IRS document to get some tips to correct the situation.

But in general, the IRS expects you to report the information on all 1099-Ks you receive on your 2024 return and then adjust it on that return or via an amended return before the original filing deadline (which you should do avoid penalties if you owe money).

“If the (1099-K) is not for business income, or if it’s for personal money transfers between family and friends, or if it’s for selling personal items at a loss, it still needs to be reported — aka, accounted for,” said David Mellem, Ashwaubenon Tax Professionals partners.

So double check the 1099-Ks that are sent to you to make sure they are accurate. If not, ask the sender to send you a corrected 1099-K. Hopefully, they will be able to do it before your official filing deadline so you can include it with the other 1099s you received on your return.