Tax season is in full swing, and tax forms are now flooding into taxpayers’ mailboxes. With the IRS lowering the reporting threshold for income received via third-party settlement organizations (TPSOs)—think popular payment apps and marketplaces like Cash App, eBay, Etsy, PayPal, and Venmo, among others—for the payment of “goods or services,” more taxpayers will be receiving Form 1099-K this year, including many who may have never received one before.
The IRS initially planned to lower the reporting threshold to $600, but implementation has been delayed. For the 2024 tax year, the threshold is $5,000, though reductions are expected in 2025 and 2026. What this means for the 2024 tax year is that TPSOs must issue 1099-Ks to taxpayers who received gross payments for goods or services of more than $5,000. However, some organizations, like eBay and PayPal, may still issue a 1099-K even if the income received through them was below the $5,000 threshold.
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What if you receive a 1099-K? Unfortunately, ignoring it isn’t an option.
What is a 1099-K?
It’s important to understand that Form 1099-K is an information return, meaning the income reported on the form is provided to both taxpayers and the IRS. Since the IRS receives a copy of every 1099-K issued, failing to properly report income could trigger an IRS notice or audit. Keeping accurate records ensures that only taxable income is reported. Taxpayers must also be mindful that a 1099-K will be issued by each TPSO when required, so a taxpayer who received payments via multiple platforms may receive multiple 1099-Ks for the tax year.
Importantly, taxpayers are responsible for reporting all the income included on all 1099-Ks received. However, just because income from a payment is reported on Form 1099-K doesn’t mean it’s taxable income. In fact, Form 1099-K doesn’t distinguish between how much, if any, of the income listed is taxable. That’s why good recordkeeping of payments received throughout the year is important.
Did you sell personal items?
If you sold personal items on eBay for less than you paid for them, for instance, that income isn’t taxable. While the loss on the sale of a personal item can’t be deducted from your taxable income, you can zero out the gross income reported on the 1099-K for that sale so you don’t pay taxes on it. On the other hand, if you sell personal items for a gain, meaning more than what you originally purchased them for, the gain (less expenses) is taxable income.
Did you sell goods or provide services?
If you sell goods on eBay or Etsy, for example, or provide services you’re paid for as part of a personal business, side hustle, gig work, or contract or freelance employment, the income reported on your 1099-K is taxable. However, you may deduct the expenses related to the sale of the goods or services from the gross income reported on the 1099-K to lower the amount of taxable income.
All in all, the likelihood and frequency of receiving a 1099-K is increasing, especially with the IRS looking to lower the 1099-K reporting threshold to $2,500 in 2025 and $600 in 2026. Savvy taxpayers should make a list of the 1099-Ks they expect to receive to ensure they’re all accounted for before filing their tax returns this year. Most tax forms will be delivered from January through February, although some may arrive later. It’s also always smart to check each form for any errors or inconsistencies before filing.
The deadline for filing individual tax returns is April 15, 2025, which is also the deadline for requesting a six-month filing extension. Remember, however, an extension only provides additional time to file a return, and any anticipated tax payments are still due on April 15. The IRS urges taxpayers to electronically file their tax returns and choose direct deposit for receiving any refunds to speed up processing and enhance security.
While the IRS provides guidance on what to do with a 1099-K, filing federal and state tax returns can still be complicated. The Illinois CPA Society (ICPAS) reminds taxpayers that CPAs, certified public accountants, are ready to help. ICPAS’ free “Find a CPA” directory can help you find the trusted, strategic advisor that’s right for you based on location, types of services needed, and languages spoken. Find a CPA at www.icpas.org/findacpa.
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About the Illinois CPA Society
Founded in 1903, the Illinois CPA Society, with more than 20,700 members, is one of the largest state CPA societies in the nation. Its mission is dedicated to enhancing the value of the CPA profession through the strategic initiatives of advocacy, information, education, and connections. Visit www.icpas.org.
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