$600 doesn’t sound like much in the grand scheme of a year’s income. It could come from a few sales on Etsy, or maybe you rented your home out on Airbnb out for a couple of nights. From the perspective of the IRS, however, that $600+ represents taxable income that has historically gone unreported—and unsurprisingly, the IRS wants to make sure it’s collecting the Treasury’s fair share using Form 1099-K.
Update: The IRS plans a phased-in approach for the $600 reporting threshold, with a $5,000 threshold anticipated for calendar year 2024.
Learning this comes as a major shock to many Americans, and for a good reason. In previous years, sellers and gig workers using platforms like Etsy, Uber, eBay, VRBO, Airbnb, and many others only received a 1099-K if their sales were greater than $20,000 AND they had more than 200 transactions. Beginning in tax year 2024, users who earn $600 or more through these platforms will receive Form 1099-K (matching the threshold for sending Form 1099-NEC). The minimum transaction requirement is gone, which means that just one sale, property rental, or service performed for $600 will generate Form 1099-K for tax year 2024 and thereafter.
What is Form 1099-K?
Form 1099-K is used to report payment card and third-party network transactions. Much like the alphabet soup of other 1099 forms, one copy is sent to the taxpayer, while another copy is filed with the IRS. Although the lack of a 1099 form doesn’t absolve a taxpayer of the responsibility to report any income, it’s a lot easier for the IRS to track compliance when that income is reported on a 1099.
The key point with the changes to reporting thresholds is that the tax law itself remains unchanged. You have always been responsible for reporting income you earn through online marketplaces like Airbnb, PayPal, Amazon, etc., even if the income is part of a side-hustle. Capturing more transactions via Form 1099-K enables the IRS to step up its enforcement and collection efforts.
Who will receive Form 1099-K?
Following are some examples of situations that are highly likely to cross the new threshold in 2024 and beyond:
- Renting out your vacation home for a couple of weekends throughout the year on Airbnb or VRBO
- Selling a few thousand dollars worth of crafts on Etsy
- Using Stripe to collect payments for baked goods at summer farmers’ markets or festivals
- Driving part-time for Uber, Lyft, DoorDash, or Postmates
- Reselling garage sale treasures on eBay
If you receive more than $600 (no transaction minimum) from one of these platforms in a calendar year, you will receive a 1099-K for tax year 2024, and so will the IRS.
The income reported on 1099-K will be subject to self-employment income tax, leaving you responsible for the full amount of Social Security and Medicare taxes. If you believe you will owe more than $1,000 in taxes, you may be required to pay quarterly estimated taxes. Not only will you avoid possible penalties by paying quarterly estimated taxes, but you will also avoid an unexpectedly large tax bill at the end of the year. For those who are now reporting this income, the good news is that you most likely have deductible business expenses. Common deductions that you may be eligible for include: the home office deduction, cell phone, and internet service, and health insurance premiums.
We have put together a comprehensive guide of the top small business tax deductions that will leave you feeling relieved this tax season. In this guide, you will find small business tax tips, detailed examples, and strategies to tracking expenses, giving you a better understanding of how to take advantage of these tax savings.
Complete the form to receive a free download of: Small Business Tax Deductions – Your guide to understanding the overall impact of business expenses.
Does income from a hobby have to be reported to the IRS?
Many people are confused about the requirements when selling personal, handcrafted, or used items online. In general, the IRS classifies an activity as a hobby if it’s done for recreation (rather than in order to make a profit). There can be a lot of gray areas here, and we strongly recommend consulting with a tax professional if you’re realizing that your hobby may cause you to receive Form 1099-K. In most cases, it’s appropriate to classify the activity as a business. If you’re selling items for more than you paid to purchase them, you may incur a capital gain.
Do rental property owners face special reporting requirements?
Rental property owners who list their properties online, whether it’s through a big site like Airbnb or VRBO or through a more locally-focused realty group, are required to report their rental income if the property was occupied for 14 days or longer during the year. Those who are listing multiple rental properties online and have not previously reached the reporting threshold should be prepared by carefully tracking income and expenses for each property.
Contact us to schedule a consultation with an advisor to ensure you are prepared for the coming changes and taking advantage of all deductions available to you.