Don’t forget: some big changes are coming for anyone earning more than $600 through a third-party settlement organization (TPSO). Whether you’ve generated income from Etsy, Airbnb, eBay, VRBO, Uber, or Amazon, you can soon expect to receive a Form 1099-K, which is also filed with the IRS. So, is 1099-K income taxable? And how will the new requirements affect you when you file your taxes in the coming years?
The latest updates regarding 1099-K reporting
- In November 2023, IRS Notice 2023-74 announced a delay in the $600 Form 1099-K reporting threshold for TPSOs for calendar year 2023.
- TPSOs in 2023 are not obligated to report payments in settlement of third-party network transactions for a participating payee unless the gross amount of aggregate payments exceeds $20,000, and the number of transactions exceeds 200.
- The IRS plans a phased-in approach for the $600 reporting threshold, with a $5,000 threshold anticipated for calendar year 2024.
- Detailed information on the phased-in approach for 2024 is not currently available.
What is Form 1099-K?
Form 1099-K is used by third-party settlement organizations to report your credit card receipts processed for the year to the IRS: one copy is sent to you, and another copy is filed with the IRS. You’ll still need to report any income, but the 1099 makes it much easier for the IRS to track compliance.
Form 1099-K is also used by online platforms that facilitate ecommerce—think of every website you may use to process payments, such as Amazon, Airbnb, eBay, Etsy, Lyft, etc.
Is Form 1099-K income taxable?
You’ve always been responsible for reporting online income on your tax return. But, in 2024, the IRS will enforce these roles in a more targeted manner that enables better tracking of the movement of funds. So, what’s changed?
Before the changes come into play, you will only receive a Form 1099-K if your online sales amounted to more than $20,000 AND you had over 200 transactions. In the 2024 tax year, the IRS is planning for a threshold of $5,000 for the 2024 calendar year as part of a phased-in approach to implementing the $600 reporting threshold under the Act.
In time, any taxpayer who generates $600 or more in online sales will receive Form 1099-K, even if the income generated is from a hobby or side hustle and not a primary source of income. There will no longer be a minimum transaction requirement, which means that just one sale, rental, or service performed for $600 or more will generate Form 1099-K.
Who will receive Form 1099-K?
Examples of those who will receive a 1099-K include rental property owners who list their properties online, freelancers compensated via PayPal, Etsy sellers, small businesses and professionals who accept card transactions as payment, and gig workers, such as Uber and Lyft drivers. Essentially, if you receive more than $600 (no transaction minimum) in payments from an online platform in a calendar year, you will receive a 1099-K from each platform, as will the IRS.
Here are some examples of situations that could cross the new income thresholds in 2024 and beyond:
- Renting out your home or vacation home for a couple of weekends a year through platforms such as Airbnb or VRBO
- Selling over $600 worth of crafts on Etsy
- Using Stripe or another online payment processor to collect payments at your summer market, festival, or a one-off event
- Driving part-time for Uber, Lyft, Postmates, or DoorDash
- Reselling garage sale treasures or family heirlooms on eBay
Where might someone have trouble with Form 1099-K?
Many gig workers, particularly those new to the industry, fail to account for their gig income on their tax returns. This is not a mistake you want to make, and the IRS now has more specific documentation to track those funds. For example, if your 1099-K doesn’t match up with the total income you report, you may receive a notice from the IRS flagging the mismatch.
Our top tips for 1099 income tax
- When you report this income, remember that you can also report deductible business expenses, such as home office expenses, travel costs, material costs, and rental income maintenance. Check out our guide to small business tax deductions to get you started.
- If you own a rental property, consider cost segregation to boost your cash flow and decrease your tax liability.
- If you’re new to earning money on the side, be sure to educate yourself and take advantage of the tax deductions available to you.
- Be sure to check your 1099-K carefully for any errors, such as an incorrect amount earned.
- Send all tax forms you receive to your accountant to ensure that your tax return reports your income accurately.
- Learn more about handling your side hustle income at tax time.
Contact one of our experienced CPAs to schedule a consultation with an advisor to ensure you are prepared for the coming changes and that you’re taking advantage of all deductions available to you.
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