1099-K Reporting Threshold Changes in 2025: What Individuals and Small Businesses Need to Know

Background: From $20,000 to $600 – A Big Change in Reporting

For years, third-party payment processors (like PayPal, Venmo, Etsy, etc.) only had to issue a Form 1099-K if a user’s transactions exceeded $20,000 AND 200 transactions in a year. This meant only high-volume sellers typically received these forms. However, the American Rescue Plan Act of 2021 (ARPA) drastically lowered the threshold to $600 (with no transaction minimum) effective for 2022 and beyond. In theory, this would mean millions more people – even casual sellers or gig workers – would start getting IRS reporting forms for relatively small amounts of income.

Why the change? Lawmakers intended to capture more taxable income from the gig and online economy that was previously going unreported. By setting a $600 threshold, even minor side-hustle earnings would be reported to the IRS. The change, however, sparked significant concern from taxpayers and professional groups that it would cause confusion and administrative headaches.

IRS Delays and Phased Implementation

Recognizing the potential chaos from issuing millions of new 1099-K forms all at once, the IRS hit the brakes. They delayed enforcing the $600 threshold for two years in a row, treating 2022 and 2023 as “transition” years during which the old $20k/200 rule still applied. Instead of dropping straight to $600, the IRS announced a phased rollout:

• Tax Year 2024: Forms 1099-K issued for payees with over $5,000 in aggregate payments (for goods/services).

• Tax Year 2025: Forms 1099-K issued for payees with over $2,500 in payments.

• Tax Year 2026 and beyond: Forms 1099-K issued for over $600 in payments (as originally mandated by law).

This graduated approach was confirmed in late 2024 guidance (Notice 2024-85) and is designed to “ease the transition” for payment platforms and taxpayers. For 2023 filings (the returns due in 2024), the old threshold remained in place while the IRS geared up for the new reporting regime.

Why the Threshold Change Was Delayed

The $600 threshold would have triggered a flood of tax forms – by IRS estimates, about 44 million Form 1099-Ks annually, over three times the number issued for 2023 under the higher threshold. Many of these forms would go to people selling personal items or splitting bills, activities that often do not produce taxable income. For example, if you sold a used couch for $200 or got reimbursed by roommates for rent via a payment app, those transactions could have generated tax forms under the $600 rule, even though they aren’t taxable events. The IRS explicitly acknowledged this problem: casual sellers who sold personal items at a loss (for less than what they originally paid) would have received 1099-Ks despite having no income to tax.

Tax professional groups also voiced concern. The American Institute of CPAs (AICPA) warned that a $600 reporting threshold “will create confusion for many taxpayers” who would be forced to reconcile a flurry of forms and potentially report transactions that aren’t actually taxable. In response to such feedback – and to avoid mass taxpayer confusion – the IRS postponed the change and introduced the higher interim thresholds ($5,000 and $2,500) to gradually phase in the new law.

Impact on Small Businesses and Individuals

Who will receive Form 1099-K now? Anyone who uses third-party platforms to accept payments for goods or services might receive a 1099-K if their volume is above the threshold for the year. This includes gig workers (ride-share drivers, freelancers), online sellers (e.g. eBay, Etsy merchants), independent contractors paid via apps, and even casual side-hustlers. Starting with 2024, the threshold is $5,000 total – a much lower bar than the old $20K standard. That means millions of Americans will get 1099-Ks for the first time, including many part-time sellers and sole proprietors who never hit the old threshold.

What does the 1099-K report? It shows the gross amount of payments you received through the platform. Importantly, this is gross income before fees or expenses. Even if you only profited a little (or nothing), the full amount gets reported. Getting a 1099-K doesn’t automatically mean all the money is taxable income, but it does mean the IRS knows you received those payments, and you’ll need to account for them on your tax return.

All income is still taxable: Keep in mind, regardless of forms – legally you must report all your taxable income, even if it’s below a reporting threshold or no 1099-K is issued. The reporting rules don’t define what’s taxable; they just send information to the IRS. For example, if you earned $500 from odd jobs, you owe tax on it even if no form is filed. Conversely, if you sold personal property at a loss (not taxable), you don’t owe tax on that just because you get a form. The onus is on the taxpayer to distinguish taxable business income from non-taxable money.

Watch for mistakes and double-counting: With lower thresholds, some non-taxable or personal transactions might mistakenly get reported on a 1099-K. Common examples include:

• Personal reimbursements: Splitting rent or utility payments with roommates via an app.

• Sharing expenses: Getting paid back for a group dinner or gift purchase.

• Selling personal items at a loss: e.g. selling your used furniture, clothing, or electronics for less than you originally paid (these are generally not taxable sales).

If these appear on a 1099-K, you aren’t taxed on them – but you’ll need to keep records and possibly clarify on your tax return. The IRS has indicated that if you receive a 1099-K for something like a personal item sale, you can report the amount and then subtract it back out as an adjustment so that it’s not taxed. This can be tricky, so getting advice from a CPA or tax professional is wise if you’re unsure.

Recordkeeping is more important than ever: Small businesses and individuals should keep good records of transactions, separating business income from personal transactions. If you use payment apps for mixed purposes (business and personal), consider separating accounts or tracking carefully. That way, if a 1099-K arrives, you can easily identify which portions were business-related (taxable) versus personal. Good bookkeeping will help you file accurately and respond to any IRS questions if they arise.

Potential Legislative Changes on the Horizon

The story isn’t over yet. The dramatic drop to a $600 threshold has been controversial, and lawmakers are considering rolling it back. In fact, as of mid-2025, Congress was debating tax legislation that would restore the old Form 1099-K rules ($20,000 and 200 transactions) instead of letting the $600 threshold take full effect. There are also proposals to raise other IRS reporting thresholds – for instance, increasing the threshold for issuing Form 1099-NEC (nonemployee compensation) from $600 to around $2,000, indexed for inflation.

One bill in the U.S. House even aimed to repeal the $600 rule entirely and was packaged into a broader tax proposal in 2025. However, no change has become law yet. Given the split priorities in Washington, it’s uncertain if or when a fix will pass. Taxpayers should keep an eye on these developments, but plan under the law as it currently stands – which means preparing for the lower thresholds in 2024 and 2025. If a higher threshold gets reinstated retroactively, that would of course reduce the Form 1099-K flood. Until then, though, assume the phased-in plan will proceed.

Key Takeaways for Taxpayers (July 2025)

• Lower 1099-K Thresholds Ahead: Starting for 2024 sales, third-party platforms must issue Form 1099-K for payees with over $5,000 in payments (dropping to $2,500 for 2025). This will greatly expand the number of people getting these forms.

• Purpose of the Change: The $600 threshold (now delayed to 2026) was intended to catch more unreported income, but it was postponed due to concerns over tens of millions of extra tax forms and confusion for taxpayers. The IRS opted for a gradual phase-in to give everyone time to adjust.

• Taxable Income vs. Reported Income: You must report all taxable income even if it’s below the reporting threshold or you don’t receive a 1099-K. Conversely, if you do get a 1099-K for something that isn’t taxable (like a personal item sale), you won’t owe tax on that – but you may need to document it properly.

• Be Prepared: If you use apps for business, assume you’ll get a 1099-K if you exceed the new limits. Maintain clear records of business earnings vs. personal transactions. This will help you file an accurate return and substantiate any nontaxable amounts (e.g. personal reimbursements) that might appear on a 1099-K.

• Possible Changes Pending: Congress knows the $600 threshold is controversial. As of mid-2025, there are active proposals to raise the threshold or revert to the old rules. No law has passed yet, but this is a developing area – stay tuned to tax news or consult your tax advisor for updates before the 2025 filing season.

By understanding these reporting changes, individual taxpayers and small business owners can avoid surprises and ensure they stay compliant. The IRS’s phased approach gives a bit of breathing room, but now is the time to adapt. If you’re unsure how these rules apply to you, reach out to a CPA or tax professional. Being proactive will help you take these new requirements in stride and prevent any unwelcome IRS surprises down the road.