Before you sit down to do your taxes, or hand the task off to a professional, you might spend a chunk of time gathering tax forms. If you were an employee last year you can expect to receive a W-2 with all of your earnings and tax withholdings reported on one form. But if you were a contractor, freelancer, or small-business owner—or even a casual online seller—who used an app, card processor, or online marketplace to get paid, you may have one or more 1099-Ks coming your way.
Form 1099-K is an informational return issued by companies that facilitate payments for goods or services, like PayPal or Stripe, or an online marketplace like Etsy or Ticketmaster, among others. It shows a user’s gross receipts for the tax year, as well as any tax withholding. You’ll need it to fill out your tax return accurately.
What are the new 1099-K reporting requirements?
For tax year 2024, the IRS requires payment facilitators to issue a 1099-K for any user who earns more than $5,000 in business payments. Both the IRS and the user should get a copy of the form to ensure accurate income and tax reporting. A 1099-K should only include payments collected for the sale of goods or services, not personal payments like cash gifts or reimbursements shared between family or friends, which aren’t taxable from an income-tax perspective. Keep in mind that gifts of over $18,000 per recipient in 2024 ($36,000 per recipient for married couples) will either reduce the donor’s lifetime gift and estate tax exemption or be subject to gift tax. For 2025, the annual exclusions are $19,000 per recipient for individuals and $38,000 per recipient for married couples.
The previous reporting threshold of $20,000 in sales and at least 200 transactions was significantly higher than the new $5,000 threshold. Due to the high threshold, many taxpayers with substantial side-hustle or small-business income previously did not receive a Form 1099-K. This left them to rely on their own records when reporting earnings on their tax returns, or in some cases, underreporting income, as the IRS did not have an easy way to verify what they earned.
Congress made an effort to curb such underreporting when it passed the American Rescue Plan Act in 2021, an economic stimulus bill which, among other things, said payment facilitators should report earnings once they exceed $600 for the year.1 That much lower threshold proved difficult to implement in short order, so the IRS has taken a phased approach.2
The 1099-K reporting threshold drops from $5,000 to $2,500 for tax year 2025Opens in a new window and then to $600 for tax years 2026 and beyond. Many taxpayers who do business online or accept work payments via mobile apps should expect to get the form in the coming years.
How new tax rules apply to online sellers
Sales made through mobile apps, craft marketplaces, auction sites, ride-sharing platforms, ticket exchanges or resale sites, and freelance marketplaces all fall under the new reporting requirements. The good news is that typical users of these platforms, which the IRS calls “third-party settlement organizations,” are independent and gig-economy workers who are used to self-employment income reporting rules.
But occasional sellers can be impacted by the new 1099-K requirements. Say you clean out your garage and sell a couple of bikes and a shoe collection on eBay. If you hit the $5,000 reporting threshold for 2024, you get a 1099-K, per eBay’s protocol—even though the items were personal property, not business inventory. It’s up to you to report your original purchase price of the items and the sale price on IRS Form 8949 to figure out whether you turned a profit, also known as a capital gain. If you did, it should be reported on Schedule D of your tax return.
How much do I have to make to get a 1099-K?
You generally need more than $5,000 in earnings on a single platform or app in tax year 2024 for a company to send you a 1099-K.
The companies themselves are responsible for keeping a record of payments for each user and totaling them at the end of the year. If your total exceeds the annual threshold, the company is required to generate a 1099-K for you and the IRS.
However, some companies may choose or be required to send 1099-Ks to users with less than $5,000 in payments. In Illinois, Maryland, Massachusetts, Missouri, Vermont, Virginia, and Washington, D.C. the state thresholds are lower than the federal one. Consult a tax advisor about your state tax filing obligations.
How do I know if I’m getting a 1099-K?
Companies must send 1099-Ks to users by January 31 following the applicable tax year. If you haven’t received yours in the mail yet, check if it’s available for download in your online account. Many companies provide you with digital tax forms in addition to, or in lieu of, paper forms.
- Venmo, and its parent PayPal, are 2 of the most popular payment apps in the US. They encourage users to create business accounts to keep taxable business payments and nontaxable personal payments separate, but do not require it. If you opt to do business on a personal account, there’s an option for tagging a payment as such. All business transactions get added together to get your gross payment amount for the tax year. If it exceeded $5,000 for 2024, a 1099-K should be issued.
- Cash App also issues 1099-Ks for users who hit the federal threshold—or a lower state threshold—but only for business accounts.
- Zelle, a popular bank-to-bank payment app, does not fall under the new 1099-K reporting requirements, but you should still report any business income you collect there.
Cash App, Venmo, and PayPal are far from the only platforms that report online income to the IRS, but they are some of the most used. As mentioned earlier, the same reporting rules apply to basically any platform where money is exchanged for a good or service, including ride-sharing apps, craft marketplaces, and auction sites.
Do I have to pay taxes on 1099-K income?
Yes, 1099-K income is taxable, similar to the income you earn from a traditional job. But unlike income from a W-2 job, taxes usually won’t be withheld from your online payments as you earn them.
You should always report payments on your tax returns that you earned for business activities, even if you didn’t receive a 1099-K logging them. If you expect to owe at least $1,000, you may need to make estimated tax payments throughout the year instead of waiting to pay when you file, to avoid penalties.
There is one instance in which you could have taxes withheld from your online payments: If you haven’t provided the company with your current tax identification number, which can be an Employer Identification Number or a Social Security number, depending on your business structure. If you don’t provide that tax ID, backup withholding, as it’s called, will be triggered. The IRS requires this type of tax withholding for each user who reaches the annual reporting threshold but has not provided a current tax ID to the company handling payments. Taxes are withheld at a standard rate of 24%Opens in a new window which may be higher than your actual tax rate. Keeping your account updated will help you avoid backup withholding.
How to read a 1099-K
Here are the most important elements of a 1099-K form:
- Box 1a: Gross total payments made to you through a payment settlement entity for the tax year. (Note: This does not include any refunds, credits, or adjustments to payments you received. Those items may be considered business expenses that you can deduct later.)
- Box 1b: Gross amount of payments made through a payment settlement entity where a card was not present for the transaction.
- Box 2: Merchant code used for payment card/third-party network transactions.
- Box 3: Number of payment transactions.
- Box 4: Backup withholding amount, if any.
- Box 5a-5l: Gross total payments for each month.
- Boxes 6-8: State and local income tax withheld from the payments, if any.
How to file your 1099-K
If you receive a 1099-K you don’t need to file it with your tax return. Instead, use the information to report your income from payment apps, processors, and marketplaces on the appropriate tax forms.
For federal returns, sole proprietors should report their 1099-K income on Schedule C, partnerships should report the income on Schedule E, and corporations should report the income on Form 1120. Check with your state tax department to find out where to report 1099-K income on your state return.
Keep your 1099-Ks with other tax forms for at least 3 years from your filing date.
What happens if my 1099-K is incorrect?
If you receive your 1099-K and notice a mistake, reach out to the company that issued it as soon as possible. Ask for a detailed transaction list so you can review it for accuracy, and cross-check it against your own records. If something needs to be fixed, follow the company’s instructions for requesting a corrected form—you may need to provide documentation or receipts as evidence. Don’t file your tax return until you get the corrected form.
Tips for keeping track of online payments for 1099-K
Create a business account. A good strategy for keeping track of online payments is to set up a separate business account for your business-related transactions. Otherwise, you may receive a 1099-K that includes personal payments, such as a repayment for personal expenses or gifts, which don’t incur income tax. Keep in mind that gifts of over $18,000 per recipient in 2024 ($36,000 per recipient for married couples) will either reduce your lifetime gift and estate tax exemption or be subject to gift tax. For 2025, the annual exclusions are $19,000 per recipient for individuals and $38,000 per recipient for married couples.
Mark payments appropriately. If you continue using a personal account while conducting business, be sure to ask buyers to mark payments as “business” so that they’re categorized and tracked correctly by the payment facilitator.
Keep your account up to date. It’s crucial to keep your accounts on a payment app or online marketplace updated. When you set up an account, you’ll be asked to provide your tax ID number. If you don’t provide it, or the number is incorrect, and you hit the annual reporting threshold, the company can subject your payments to backup tax withholding at a rate of 24% and hold future payments until you update your account, per IRS guidelines.
Consult a financial professional
If you’re a gig worker, an independent contractor, or a small-business owner who gets paid for your work via an app or an online marketplace, not much should change about the way you report your income for tax purposes. But if you made more than $5,000 last year, you may be getting a new tax form. If you don’t receive the form, you should still report your earnings on your federal and state returns. And if you’re unsure whether any payments you collected are taxable, it’s a good idea to reach out to a tax advisor or a financial professional for help.