When it comes to reporting income, it’s important for businesses, freelancers, and individuals to understand Form 1099-K – and the upcoming changes to the form’s reporting threshold for the 2024 tax year that will impact who receives one of these forms.

Form 1099-K is intended to ensure that businesses and freelancers are reporting the correct amount of gross revenue related to their digital sales. Payment card companies, payment apps and online marketplaces are required to fill out Form 1099-K and send it to the IRS each year and to those who have received payments higher than a certain amount (known as the reporting threshold) through payment card processing or settlement companies such as Square and Stripe, third party payment networks like Ebay or Etsy, and payment apps like Venmo.

Over the past few years, the IRS has been lowering the 1099-K reporting threshold to level the playing field by ensuring all taxpayers pay their fair share, reduce the tax gap – the difference between total taxes owed and taxes paid voluntarily, and increase tax compliance as a part of the 2021 American Rescue Plan. This means that, going forward, more businesses and freelancers will receive and will need to report Form 1099-K on their tax returns.

In tax year 2023 (taxes filed in 2024), businesses and individuals would have received a Form 1099-K if they received $20,000 in payments from over 200 transactions on third party settlement organizations. Eventually, the IRS plans to reduce this threshold to $600, with no minimum transactions. However, to reduce hardship on taxpayers, there is a phase in implementation of the new reporting requirements, with the threshold being $5,000 in tax year 2024 (taxes filed in 2025), for payments received on a given third-party settlement organization.

In tax year 2025 (taxes filed in 2026), the $600 threshold is expected to kick-in, meaning many more businesses and freelancers – who previously did not meet the minimum threshold – will receive a Form 1099-K.

Third-party settlement organizations are responsible for sending Forms 1099-K to businesses that exceed that year’s reporting threshold. Some businesses will receive multiple Forms 1099-K in the event of multiple platforms being used and reaching the threshold. For example, if an individual or a business receives $700 in payments via Venmo, and $1,000 through Square, they would receive a 1099-K form from each platform and will have to report the amounts in that year’s taxes.

The 1099-K tax form is only applicable to business-related income. These transactions can include payments received as a gig worker, freelancer or other independent contractor (self-employed). This may also include payments received from selling items as a hobby. Payments for personal purposes on these apps and services do not need to be reported to the IRS, and most platforms will offer the option of creating an account for friends and family payments.

In many cases, there are tax deductions available to business owners who receive 1099-K forms. Some of these deductions include credit card payment processing fees, web hosting fees, and advertising expenses.

Dembo Jones can help you report 1099-K forms correctly, as well as identify any applicable deductions. Call us to learn more about how we can help.