IRS Revises Documentation as Form 1099-K Threshold Reverts to $20,000

The latest change results in less paperwork and fewer surprises for Americans who engage in casual sales.

The IRS building in Washington on March 25, 2024. Madalina Vasiliu/The Epoch Times

The IRS issued a fact sheet on Oct. 23, announcing changes made to the FAQ section in Form 1099-K based on amendments made under the One Big Beautiful Bill Act, the agency said in a statement released on Thursday.

Form 1099-K is applicable to individuals who engage in gig work or casually sell goods online. Third-party settlement organizations (TPSOs), including online marketplaces such as Amazon and eBay, and payment apps like PayPal and Venmo, are required to prepare the form and send copies to the IRS and the taxpayer. The form details the payment amounts received by the taxpayer from the sale of goods and services.

For tax years 2023 and prior, a TPSO had to issue Form 1099-K if payments totaled more than $20,000, and there were at least 200 transactions. However, the American Rescue Plan (ARP) Act, passed in 2021 by the Biden administration, brought down the threshold to $600.

The decision triggered protests from TPSOs and taxpayers. Subsequently, the IRS gradually lowered the threshold, setting it at $5,000 for 2024, $2,500 for 2025, and $600 from 2026 onwards.

The One Big Beautiful Bill Act, signed into law by President Donald Trump on July 4, reversed the Biden-era changes made to the payment thresholds.

As such, TPSOs are now “not required to file a Form 1099-K unless the gross amount of reportable payment transactions to a payee exceeds $20,000 and the number of transactions exceeds 200,” according to the fact sheet.

Generally, only taxpayers who meet these thresholds will receive a Form 1099-K from a TPSO. However, certain states may have a lower reporting threshold, it said.

The fact sheet clarified that the Form 1099-K reporting threshold “doesn’t affect whether payments are taxable or whether a tax return must be filed.”

“All income, no matter the amount, is taxable unless the tax law says it isn’t—even if you don’t get a Form 1099-K. Income also includes amounts not reported on forms, such as payments you receive in cash, property, or services,” it said.

In a May 13 statement, the Coalition for 1099-K Fairness had called on including the threshold reversal in the One Big Beautiful Bill.

The American Rescue Plan Act’s $600 threshold “threatened to overwhelm small businesses and individuals utilizing payment apps with confusing tax forms and expose millions of transactions to unnecessary scrutiny,” the coalition said.

“Reinstating the previous standard brings clarity and consistency back to hardworking Americans and reduces administrative waste for both taxpayers and the IRS.”

The latest change results in less paperwork and fewer surprises for Americans who engage in casual sales or make modest income online, the coalition said on its website.

The IRS clarified that personal payments received from friends and family as gifts or repayment for personal expenses should not be reported on Form 1099-K, as they are not treated as taxable income.

“For example: Sharing the cost of a car ride or meal, receiving money for birthday or holiday gifts, or getting repaid by a roommate for rent or a household bill. Be sure to note these types of payments as non-business in the payment apps when possible,” the agency said.

In the case a taxpayer receives a Form 1099-K when they shouldn’t have, they are advised to get in touch with the issuer immediately and ask for a corrected form to be reissued, according to the tax agency.

The name and contact information of the issuer can be found under the “Filer” section in the top left corner of Form 1099-K.

“Keep a copy of the original form and all correspondence with the issuer for your records,” the agency said.

“Don’t wait to file your taxes. File even if you can’t get a corrected Form 1099-K.”