Understanding the 2024–2026 Shake‑Up in 1099‑K Reporting
Being a small business owner means the ability to adapt with changes. Before cash apps were used, it was relatively easy to understand. Paying with cash or check was typically the norm. Today, if you’re taking payments for services, your business needs to be familiar with payments via Venmo, Zelle, Cash App, PayPal, or similar apps. Below is an overview of what changes to expect and how best to prepare for the future.
What Is the 1099‑K Used For?
The IRS uses Form 1099‑K to track payments received through third‑party apps for goods and services. Business income processed via these platforms triggers a report to both you and the IRS. It’s an informational form but it gives the IRS visibility on your app income. That said, it’s easy to misinterpret thresholds and tax obligations. These platforms must send you a copy by January 31 following the tax year. Some examples of who would get a 1099-K include the following:
- Freelancer tutoring via PayPal: You tutor students and collect $6,500 in 2024 through PayPal. You’ll receive a 1099‑K from PayPal and must report the full gross payments.
- Etsy seller flipping vintage goods: You sell handcrafted jewelry via Etsy and hit $12,000 in annual gross sales.
- Rideshare or delivery driver: You drive for Uber or Lyft, accumulating over $5,000 in payments.
- Rental income through Cash App or Venmo: If you collect rent via Cash App totaling more than $6,000 (2024) the app may issue you a 1099‑K, and you’ll report this as rental income.
Friends and family transfers (e.g., splitting a dinner bill, paying rent to relatives) aren’t reported. Understanding what taxable events are can give you more insights to your business and how to plan accordingly.
New Thresholds for 1099‑K Reporting
The IRS has implemented a phased‑in approach to ease taxpayers and payment platforms into new reporting requirements under Notice 2024‑85.
2023 Tax Year (filed spring 2024)
- Threshold: Over $20,000 AND 200+ transactions
- The IRS delayed the $600 limit again, keeping the existing higher threshold for another year
- What this means: Only high-volume earners,like busy Etsy sellers or frequent ride-share drivers, received a 1099‑K for 2023, unless backup withholding was triggered
2024 Tax Year (filed spring 2025)
- Threshold lowered to: $5,000 gross payments for goods/services. There is no minimum transaction count
- Platforms must report if you collect more than $5,000 in business payments via Venmo, Cash App, Etsy, eBay, etc.
- There’s a temporary waiver on penalties for backup withholding missteps by platforms in 2024
2025 Tax Year (filed spring 2026)
Many freelancers, side‑hustle sellers, and gig workers expect to start receiving 1099‑Ks next year. The IRS continues transitional relief through 2025. Platforms face penalty risk if they mishandle backup withholding
2026 Tax Year and Beyond (filed spring 2027)
- Final drop to: $600 gross business payments, no transaction minimum
This means even small revenue streams are subject to IRS scrutiny. Keeping track of all your financials is necessary, even with smaller amounts. The IRS delayed the original $600 threshold to reduce reporting burden, giving apps and users time to adjust.
Common Misconceptions About 1099-Ks
As the IRS rolls out these new reporting thresholds, misunderstandings about 1099-K forms are becoming more common. It’s important to clear up some of the most frequent myths so you can avoid mistakes that could lead to penalties or audits.
Misconception 1: “If I Don’t Receive a 1099-K, I Don’t Have to Report the Income.”
This might be the biggest myth about reporting your income.. Whether or not you receive a 1099-K (or any tax form), you’re still legally required to report all income from your business. The 1099-K is a tool the IRS uses to match reported income with what platforms say you earned. Skipping income on your return is considered underreporting and could trigger an audit. In summary, report all income.
Misconception 2: “Money Received From Friends or Family Might Be Taxed.”
Apps like Venmo and PayPal have personal and business settings, and it’s crucial to use the correct one. If you accidentally use a business profile for personal transfers, that money could be misclassified and trigger a 1099-K. However, personal payments for things like splitting dinner, paying a roommate, or birthday gifts are not taxable. You should not receive a 1099-K for them. Ensure transactions are reported correctly.
Misconception 3: “I’ll Only Owe Taxes on What’s on My 1099-K.”
Not quite. The 1099-K reports gross income, not your actual taxable income. You’ll still need to account for expenses, refunds, chargebacks, etc.. This is why it’s critical to maintain good bookkeeping. The 1099-K can help you reconcile your records, but it doesn’t reflect your entire financial picture.
Why Does This Matter To You Or A Small Business?
If you’re not tracking income accurately or using separate accounts for business and personal use, these new rules could result in confusion. For example, let’s say you casually sell used items online or accept payments through a personal Venmo account. If those funds are misclassified, you could end up with a 1099-K reporting income that wasn’t actually related to your business.
Here’s how you can protect yourself:
1. Separate Personal and Business Transactions
Use dedicated business accounts whenever possible. For example, Venmo offers a business profile option. This not only keeps things organized but also ensures only business-related transactions are reported on your 1099-K.
2. Keep Detailed Records
Don’t rely solely on third-party apps for tax documentation. Maintain your own bookkeeping, including invoices, receipts, refunds, and any platform fees deducted. This will help you accurately calculate your taxable income when reconciling your return.
3. Work With a Tax Professional
Tax rules are always evolving. A knowledgeable accountant or tax preparer can help you correctly interpret your 1099-K, apply deductions, and avoid costly mistakes. This is especially important if you’re new to digital payments or self-employment.
4. Stay Informed
The IRS has made it clear that they’re paying closer attention to digital income. Staying up to date on threshold changes and how they affect your business can help you avoid underreporting income or misfiling your taxes.
Final Thoughts
The world of digital payments is constantly changing and adapting to these changes is key to staying compliant and organized. The 1099-K form is just one piece of the puzzle, but understanding how it works can help you avoid surprises and focus on growing your business.
As the thresholds continue to drop, even those who have a small side hustle need to be ready. Start preparing now so that when tax season comes around, you’re not scrambling to sort through a year’s worth of transactions. Have questions about how these changes impact your specific situation? Consult with Flexkeeper to keep your finances in order.