Form 1099-K Q&A

Form 1099-K is a tax form used to report income received through payment card transactions or third-party network transactions (such as Venmo or PayPal). It is also typically used by businesses or individuals who receive payments through credit card transactions, debit card transactions, or other electronic payment methods.

The 1099-K is not a new form, but legislative changes in March 2021 significantly decreased the filing threshold that was originally scheduled to be implemented for the tax year 2022 but has been delayed. The IRS is planning for an interim threshold of $5,000 for the tax year 2024 to phase in the $600 reporting threshold.

What is the current reporting threshold for 2023 and forward for Form 1099-K?

In November 2023, the IRS announced a delay in the $600 reporting threshold for Form 1099-K. For the tax year 2023, reporting will not be required unless you received payments over $20,000 and have more than 200 transactions. A $5,000 threshold is planned as an interim phase-in for the tax year 2024. And in 2025, taxpayers who received over $600 with any number of transactions will receive Form 1099-K.

What happens if I receive a Form 1099-K in error?

Contact the issuer of the 1099-K to determine if they will issue a corrected form. If they are unable to issue a corrected form, the IRS recommends reporting the information as other income, and other adjustment to your income with notes that 1099-k was received in error.

How do I prevent personal transactions from being reported to me on Form 1099-K?

PayPal and Venmo offer the option to tag their transactions as either personal/friends and family OR goods and services by choosing the appropriate category for each transaction. Note that if you are selling a personal item, such as concert tickets, this should be considered a goods/services transaction.

Ensure that personal and business transactions are kept separated within the third-party platform.

I sold a personal item during the year and received payment using a third-party settlement organization. How this should be reported on my tax return?

Yoi should first determine whether the items were sold for a gain or a loss. You cannot offset the gain on the sale of personal assets with losses from the sale of personal assets.

If you sell an item you owned for personal use at a gain, your gain is taxable as a capital gain (regardless of whether it was reported on a 1099-K).

If you sell a personal item at a loss and you received a 1099-K, report transaction as other income, and other adjustment to the income. The net effect of these adjustments should be zero.  

I have a crafting hobby and sell products on Etsy. I received Form 1099-K. How should this be reported?

These can be complicated rules around whether an activity is a hobby or a business for tax purposes. But if the activity is considered a hobby, the income should be reported (regardless of whether it was reported on a 1099-K), and the expenses are not allowed.

Please reach out at 678-780-8615 if you need an assistance.