Updated November 2023
Originally, the IRS announced changes in what companies were required to report to the IRS in 2023, meaning more taxpayers would have received Form 1099-K than in previous years. However, after much confusion, the IRS decided to postpone the threshold changes once again, meaning you should only receive Form 1099-K for 2023 if you hit an annual threshold of $20,000 in gross payments and at least 200 transactions.
Now, changes won't be happening until 2024, when the IRS will lower the reporting threshold to $5,000 with no transaction minimum, with the goal of eventually lowering the annual threshold to $600 in 2025, unless changes are made.
If you receive Form 1099-K this year, don't panic; we’re here to help you report this correctly on your income tax return.
What is Form 1099-K?
Form 1099-K records transactions from credit cards and third-party payment networks like PayPal, Venmo, or Square. Once you hit a certain threshold in payments received from these platforms, the third-party app is required to send you a 1099-K. They will also send copies of this 1099-K to the IRS and the state.
Why did I receive a 1099-K?
If you receive a 1099-K for 2023, it means you had at least to have made at least 200 transactions totaling at least $20,000 through one of these third-party apps OR you were subject to backup withholding. Additionally, some states have lower 1099-K reporting thresholds (as low as $600), so even if you didn't hit the federal threshold we mentioned, you may still receive the form if you hit your state's threshold.
You could also receive more than one 1099-K — for example, if you hit the $20,000 threshold on both Venmo and Cash App, you’d receive a 1099-K from both companies.
This threshold is dropping to $5,000 with no transaction minimum for 2024, so big changes are coming, and more people will start receiving Form 1099-K in the coming years.
Does a 1099-K mean I owe money to the IRS?
Not necessarily. A 1099-K doesn’t differentiate between business transactions and personal transactions — it’s simply an informational document showing all the transactions made to you via the payment app. That means it’s up to you to decide whether those transactions were taxable.
You only owe taxes on the net profits you made. Here are some examples of taxable transactions:
1. You sold a personal item or collectible for more than you originally paid for it, and you collected your payment through Venmo.
2.You sold goods at a farmer’s market as a side hustle and collected customer payments through an app such as Square.
3. You rented out a room in your house and collected payments and fees from renters through a third-party payment app like PayPal.
4. You crochet as a hobby and occasionally sell items you’ve made online through a site like eBay or Etsy.
You do not owe taxes on personal transactions or items sold at a loss. Here are some examples of non-taxable transactions that you would not need to report:
1.You sold a personal item for less than you originally paid for it. For example, you sold your couch on Facebook Marketplace for $100, but you originally paid $600 for the couch several years ago.
2.You were reimbursed by your roommates via an app like Venmo.
3.You received any other personal transactions from friends or family through a third-party payment app.
Don’t worry if this sounds confusing. TaxAct will help you differentiate between taxable and nontaxable payments by asking you questions about what you sold.
How do I submit a 1099-K?
If you choose to e-file with TaxAct, we’ll ask you for more information about the transactions on your Form 1099-K. Knowing what the payments were for helps us determine whether you owe taxes on that income.
First, we’ll ask you if you received any 1099-K income for self-employment or side hustle work, selling personal items, rentals, farming, or other activities not for profit. From there, depending on your answers, we’ll walk you through how to correctly report that income and fill out the necessary tax forms for you.
We’ll also let you know if your answers indicate that only some (or none) of the transactions on your 1099-K were taxable. If that’s the case, you won’t need to report that income.
After that, you’re done submitting your Form 1099-K!
The bottom line
If you receive an unexpected Form 1099-K this year, it’s essential to know what it’s for and how to use it. Filing with TaxAct makes the process simple — we’ll guide you through it step by step so you can file quickly and confidently.
Legal disclaimers:
This article is for informational purposes only and not legal or financial advice.
All TaxAct offers, products and services are subject to applicableterms and conditions.
