We started hearing about the changes to the 1099-K form requirements in 2022; these changes were expected to take effect in 2023. The deadline was delayed, but now it’s important to know what you need to report for 2024 this tax season. Who gets it and the rise in limits has changed dramatically since 2022. On November 26, 2024, Notice 2024-85 was issued clarifying that third party payment organizations are required to report transactions for goods or services where the total income received exceeded $5,000 in 2024; more than $2,500 in 2025; and more than $600 in calendar year 2026 and for the foreseeable future.
What hasn’t changed is the IRS always expects you to report all of your income. This change in the reporting requirement is intended to make it harder to hide money.
Third Party Apps
1099-Ks are sent annually for transactions made via payment cards (such as debit and credit cards) and third-party networks (such as Venmo, CashApp, and Zelle). Prior to 2022, if you were sent more than $20,000 or had more than 200 transactions in a year, you (or your business) would receive a 1099-K. The American Rescue Plan Act of 2021 drastically changed this, and by 2026 anyone receiving payment for goods or services of more than $600 per year will receive a 1099-K. It is your responsibility to make sure your income is properly recorded.
Note that this also changes your obligations as a business owner. If you paid contractors via one of these methods, you do NOT need to send the contractor a 1099-NEC for any amounts paid via these payment methods. If you paid multiple ways, they may need a 1099-NEC and a 1099-K. As a reminder, if you expect these 1099-Ks to be sent, make sure you mark the payment as “goods and services” — otherwise, you may need to send the 1099-NEC.
While 1099-K’s are intended to go to business owners (including those who have side gigs) you may also get a 1099-K as an individual. It is still a little unclear how the third-party networks will distinguish personal payments from business payments if it’s not a separate business account but be prepared to back up why reimbursement payments you receive through Venmo for your roommates' rent aren’t income. Here’s what to do if a payment app reports your cash gifts to the IRS!
As a business owner, what do you need to do? Likely, just making sure the form is in the name of the business if you’re a Partnership, S-Corp or C-Corp will be sufficient. Also, make sure you are recording your full income on your return.
There may be some confusion if employers paid employees their wages through one of the third-party apps. If these payments are interpreted as needing to be reported, the employees may receive a 1099-K and have these amounts included on their W-2.
Be sure to look very carefully if you receive a 1099-K, and make sure only income that needs to be reported is included. If it is not, it is your responsibility to get a corrected 1099-K and/or have backup evidence if you get audited as to why the money wasn’t income and didn’t need to be reported. The IRS will be looking to make sure that you’ve reported this as income, and you don’t want to be double-taxed.
Still confusing? It’s still a little unclear how this is all going to play out, but we’re here to help. Reach out if you have questions… we’ll walk you through the requirements!
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