By Justin Quen, CPA, Tax Editor
As tax season approaches, you might receive a form you haven’t seen before: Form 1099-K: Payment Card and Third-Party Network Transactions. With the IRS stepping up its oversight of income from online platforms, understanding this form is essential. Here’s everything you need to know to confidently handle it and avoid any surprises.
What Is Form 1099-K?
Form 1099-K tracks payments you’ve received for goods or services through payment processors like credit card companies, apps (Venmo, PayPal), or online marketplaces (eBay, Etsy). It’s how the IRS keeps tabs on income from online sales, gig work, and small businesses.
Important: Personal transactions, such as splitting dinner bills or receiving gifts, should not show up on a 1099-K. However, correctly categorizing your transactions is key to ensuring you don’t end up with any confusion.
Why Am I Receiving This Form Now?
Historically, you only received a 1099-K if you had over $20,000 in payments and more than 200 transactions. But starting in 2024, the reporting thresholds have significantly dropped:
- 2024: $5,000
- 2025: $2,500
- 2026 and beyond: $600
This means more taxpayers will receive the form. Even if your total payments don’t hit the new threshold, some platforms may still issue a 1099-K. Regardless of the amount, all income from goods or services must be reported on your tax return.
How Do Payment Platforms Know If It’s Business or Personal?
Payment platforms rely on how you tag transactions. Most apps let you label payments as “personal” or “business.” Here’s the breakdown:
- Personal transactions: Splitting a dinner bill, receiving gifts, or reimbursed rent.
- Business transactions: Selling items, providing freelance services, or renting property.
Incorrect tagging could result in personal transactions appearing on your 1099-K. That’s why it’s important to categorize payments correctly at the time they occur.
What Should I Do If I Receive a 1099-K?
Just because you receive a 1099-K doesn’t mean you automatically owe taxes, but it does mean the IRS is aware of these transactions. Here’s what to do:
- Review the Form: Verify that the amounts listed match your records. If personal transactions are mistakenly included, keep proof to clarify that they weren’t business-related.
- Report Your Income:
- Personal Sales: Selling personal items (e.g., used furniture) at a loss doesn’t result in tax liability, but make sure to disclose the sale to avoid IRS issues.
- Hobby Income: Report hobby sales as “Other Income” on Schedule 1 (Form 1040).
- Business Income: Freelancers and small business owners should report income on Schedule C (Form 1040). Be sure to account for any business expenses that can reduce your taxable income.
- Make Adjustments: If your 1099-K includes non-taxable personal payments, report the total amount but deduct the personal portion in the “Other Adjustments” section of your return.
- Get Professional Help: If you’re uncertain about how to handle the form, it’s wise to consult a tax professional to make sure everything is filed correctly.
Tips for Avoiding Mistakes in the Future
To prevent future confusion and avoid overpaying, follow these best practices:
- Tag Transactions Correctly: Label each payment as “personal” or “business” when possible.
- Keep Detailed Records: Save receipts and transaction details, especially for personal transactions, in case you need to clarify anything.
- Stay Organized: If you’re self-employed or run a small business, using accounting software can help you stay on top of income and expenses.
Final Thoughts
Navigating the new 1099-K rules can be tricky, but you don’t have to do it alone. Justin is here to help this tax season. Reach out to him at Justin@JQCPA.net or call 602-571-1692 for guidance on how to handle the 1099-K and other tax matters.
About the Author
Justin Quen, a Scottsdale native and licensed CPA, holds a Master’s degree in Accounting from the University of Arizona. He specializes in personalized accounting and tax services for individuals and small business owners, helping clients make informed decisions and reduce stress during tax season.
For assistance with your taxes or financial planning, contact Justin at justin@jqcpa.net or call 602-571-1692.
