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Form 1099-K: Reasons You Might Receive It and How to File It
Summary
Rules for when companies must send Form 1099-K are changing. Learn about the form and how the changes might impact your tax return filing.
Do you use payment apps and online marketplaces to charge others directly for products and services via credit, debit, or gift cards? Or maybe you use the apps for reimbursement from family or friends, such as when you share a meal, or to receive money as a gift? If you answered, “yes” to the first scenario, you will more than likely receive a 1099-K this year. If you answered “yes” to the second scenario above, you are in luck — you shouldn’t receive a 1099-K form.
Since 2012, when Form 1099-K was first issued to taxpayers, there has been ongoing confusion about who will receive it and why.1 That’s mainly because it can be difficult to distinguish whether certain activities are a hobby or a business for tax purposes. A 2021 law, which is being phased-in starting with the 2024 tax year, is likely to add to that confusion. Read on to gain clarity on whether you might receive the form this year or in future years — and how it may apply to your tax return.
Who sends Form 1099-K?
The implementation of Form 1099-K occurred after the economic crisis of 2008, mainly due to underreporting in previous years of payments by processors, including banks and credit card merchants. Since then, the growth of the gig economy and the increasing use of payment apps and online marketplaces have contributed to the desire of the IRS to increase tax compliance.
As a result, companies like PayPal, Venmo, eBay, Stripe, Square, Poshmark, and Etsy must send a Form 1099-K to any individual, corporation, or tax-exempt entity that receives payments from third-party settlement organizations (TPSOs) and payment cards. Each TPSO must send the form detailing the total amount of payments they processed, after they reach a certain threshold. Payment cards — including credit, debit, gift, and stored-value — do not have a threshold.
The IRS provides guidelines to help determine whether your pastime of selling items, such as on eBay or Poshmark, is considered a business. For instance, are you operating as though it’s a business by advertising or promoting your products to make a profit, maintaining books and records to track profits and losses, working at it full or part time for most of your income, or using suppliers or sellers?
Similar to other tax forms, these companies must send a Form 1099-K to you by January 31, for filing your previous year’s taxes. For instance, if you receive the form in January 2025 for tax year 2024, it is for reporting on the tax return you file in 2025.
What’s changing with Form 1099-K in 2025?
Due to the American Rescue Plan Act of 2021, the earnings threshold for Form 1099-K is changing, which could affect whether you view your pastime of selling items as a business. For the 2023 tax year, taxpayers didn’t receive the form unless they had at least $20,000 in applicable payments from more than 200 transactions, making it clearer that the activities were business-related.
For 2024, the TPSO threshold is $5,000, decreasing to $2,500 for 2025, and eventually dropping to $600 in 2026.2 The lower threshold could impact you if you sell sporadically or consider selling small items as a leisurely pursuit. For example, if you earned $6,000 on Etsy in 2024, you should receive Form 1099-K for filing your tax return in 2025; but if you earned $4,000, you won’t receive the form. Payments received directly from a payment card, even as little as 1 cent, won’t trigger a 1099-K.
How is Form 1099-K used for tax returns?
If you receive Form 1099-K from one or more companies, use the information to file your tax return. You do not necessarily need to include the gross amount on the form as taxable income. For instance, the amount on the form doesn’t account for adjustments like shipping costs, refunds, and discounts, so you’ll need to rely on your records to deduct these transactions from the gross amount. Additionally, any expenses associated with a business activity can be deducted from the gross receipts, allowing you to pay tax on only the profits of your business. If the business is really just a hobby, you will not be allowed a deduction for your related expenses.
Lastly, you may have taxable income from selling goods, renting property, or providing services that isn’t included in Form 1099-K. Just because you do not receive a 1099-K or an amount isn’t listed on the form, you are still legally required to report all income on your tax return.
What’s next?
Tax forms and tax rules can be confounding. When you receive a form in the mail it may come with instructions but few explanations. Relying on tax professionals can be helpful in taking the work and worry out of filing your tax returns. But taxes are only one part of your overall financial situation — it’s important to connect the dots of every area of your financial life to help achieve your short- and long-term goals, whether business or personal.
If you’re a Mercer Advisors client, contact your wealth advisor to learn more about our tax planning and preparation services.
Not a Mercer Advisors client? We can help you navigate the complex world of taxes as they relate to your personal financial situation. No matter how small, like getting Form 1099-K, any tax liability should be part of an overall financial plan that also integrates investments, retirement planning, and estate planning. Want to understand why? Let’s talk.
1 “Form 1099-K.” Wikipedia, 27 Jan. 2025.
2 “Understanding your Form 1099-K.” IRS, 27 Jan. 2025.
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