IRS 1099-K $5K New Threshold from 2024 Taxes? What You Need to Know

IRS 1099-K Reporting: The IRS’s updated 1099-K reporting rules changes from 2024 (filed in 2026) significantly impact millions of taxpayers, including freelancers, small business owners, and casual sellers. This guide provides an in-depth analysis of the changes, their implications, and actionable steps to ensure compliance while minimizing tax liability.

1. The IRS 1099-K Threshold Timeline: Why the Phasing of the $600 Rule

Background on the American Rescue Plan Act (ARPA) of 2021

The original law mandated a drastic reduction in the 1099-K reporting threshold from20,000+200 transactions to just 600starting in2022. However, due to widespread confusion and administrative challenges, the IRS delayed enforcement and introduced a phased approach:

Why the Phase-In?

• IRS backlog: The sudden influx of millions of new 1099-K filers would overwhelm IRS processing.
• Taxpayer confusion: Many individuals selling personal items (e.g., used furniture) were unaware of reporting requirements.
• Payment platform challenges: Companies like PayPal and Venmo needed time to update systems to track lower thresholds.

Practical Example

• 2023: A part-time Etsy seller making $15,000/year wouldnotreceive a 1099-K.
• 2024: The same seller will receive a 1099-K because they crossed the $5,000 threshold.

Read this Article provided by the IRS: Understanding your Form 1099-K

2. Who Gets an IRS 1099-K—And Who Doesn’t?

Who Must Receive an IRS 1099-K?

The IRS requires payment platforms (PayPal, Venmo, Cash App, eBay, Airbnb, etc.) to issue a 1099-K if:

• Goods & services payments exceed $5,000(2024 threshold).
• Business transactions(even if not registered as a formal business).

Affected Groups:

• Freelancers & Gig Workers(Upwork, Fiverr, Uber, DoorDash)
• Online Sellers(eBay, Etsy, Poshmark, Facebook Marketplace)
• Short-Term Rental Hosts(Airbnb, VRBO)
• Small Businesses Accepting Digital Payments(Square, Shopify)

Read this Related Article – Don’t Miss Dasher Tax Secrets: How to File Your DoorDash Taxes and 1099 Form to Keep More of Your Earnings

Who is Exempted From the IRS 1099-K New Rule?

• Personal Gifts & Reimbursements(e.g., splitting dinner with friends via Venmo).
• Casual Sales of Personal Items at a Loss(e.g., selling a used laptop for less than you paid).

• However, platforms may still issue an IRS 1099-K, requiring you to report and offset the amount.

3. How to Report IRS 1099-K Income Correctly

A. Business Income (Schedule C)

If you’re running a side hustle or small business:

1. Report Gross Income(from 1099-K) onSchedule C.
2. Deduct Fees & Expenses:
   1. Payment processing fees (e.g., PayPal’s 2.9% + $0.30 per transaction).
   1. Business expenses (supplies, mileage, home office deductions).

IRS provided Article: What to do with Form 1099-K

Example:

• A freelance writer earns$7,000 via PayPalin 2024.
• PayPal fees: 210
• Other expenses (software, internet):$500.
• Taxable Profit: 7,000−210 – 500=6,290.

Know about reporting to IRS, Form 1099-DA Explained (2025): How to Report Crypto Tax and Avoid IRS Penalties

B. Personal Items Sold at a Loss

If you sold personal belongings (e.g., furniture, electronics) for less than you paid:

1. Report the IRS 1099-K amountonSchedule 1 (Form 1040), Line 8z.
   1. Description: *”Form 1099-K Personal Item – $1,200″*
2. Offset with a negative entryonSchedule 1, Line 24z.
   1. Description: *”Non-taxable personal item sale – $1,200″*

Why? The IRS sees the 1099-K, but allows you to prove no profit was made.

C. Friends & Family Payments (Venmo, Cash App, Zelle)

• Mark transactions as “Friends & Family”(if applicable).
• If misclassified as “Goods & Services,”request a corrected 1099-Kfrom the platform.

4. State-Specific Reporting Rules

Some states havestricter thresholdsthan the IRS:

• Massachusetts, Vermont, Virginia:$600 threshold(already in effect).
• Illinois, Maryland:$1,000 threshold.
• California: Follows federal rules but may audit discrepancies.

Action Step:Check your state’s Department of Revenue for updates.

5. Audit Risks & How to Protect Yourself

Why 1099-Ks Increase Audit Risk

The IRS usesautomated matching systemsto compare:

• 1099-K amounts(reported by payment platforms).
• Income reported on your tax return.

Red Flags:

• Unreported 1099-K income(even if non-taxable).
• Large discrepanciesbetween gross sales and reported income.
• No expense deductionsfor business-related transactions.

How to Avoid Problems

1. Keep Detailed Records
   1. Receipts for original purchases (to prove no profit).
   1. Bank/PayPal statements showing fees.
2. Use Accounting Software
   1. QuickBooks, FreshBooks, or Excel to track income/expenses.
3. Dispute Incorrect 1099-Ks Early
   1. Contact the payment processor (not the IRS) for corrections.

Also read, New IRS 1099-K Threshold: Avoid Penalties for Unreported Side Hustles

6. FAQs on IRS 1099-K New Rule

Q1: Do I have to report income if I didn’t get a 1099-K?

Yes!The IRS requires reporting all taxable income, regardless of whether you receive a form.

Q2: What if my 1099-K includes rent splits or personal payments?

• Step 1:Contact the platform (e.g., Venmo) to correct the form.
• Step 2:If unresolved, report the income and offset it as “non-taxable.”

Q3: Will the IRS think I’m running a business if I sell a few things online?

Not necessarily. The IRS distinguishes between:

• Hobby sales(occasional, no profit motive).
• Business activity(regular sales for profit).
  If in doubt, consult a tax professional.

7. 3 Critical Action Steps for IRS 1099-K

1. Track All Transactions
   1. Use a spreadsheet or app likeQuickBooks Self-Employed.
   1. Separatebusinessvs.personalpayments.
2. Review Your Payment Apps
   1. Ensure Venmo/PayPal transactions are correctly marked.
   1. Update tax settings in platforms like eBay or Etsy.
3. Consult a Tax Pro if Needed
   1. A CPA can help navigate deductions, estimated taxes, and state-specific rules.

Final Thoughts on IRS 1099-K New Rule

The$5,000 threshold for 2024means more taxpayers will receive 1099-Ks, even for casual sales. Understanding the rules, keeping accurate records, and reporting correctly can help avoid penalties and minimize tax liability.

Need Help?Consider scheduling a consultation with a tax professional before filing your tax return.