The information in this article is up to date through tax year 2024 (taxes filed in 2025).
The American Rescue Plan changed Form 1099-K reporting requirements for third-party payment networks like Venmo and Cash App. These networks process credit and debit card payments or electronic payment transfers, and their use has exploded over the last several years. As a result, you’ll be sure to see several clients with Form 1099-K.
Initially, the IRS planned to implement new reporting requirements beginning in 2023. However, based on feedback from the tax community, and anticipated impact on taxpayers, the IRS has announced they will treat 2023 as a transition year and phase in the reporting requirements outlined in ARP. This article will help keep you up-to-date on how clients should report Form 1099-K in the coming years.
What is a 1099-K?
Form 1099-K details all payments received through payment settlement entities (PSEs). These entities include payment cards such as credit and debit cards as well as third-party payment networks like Venmo and Cash App. The form can be sent to individuals (using their Social Security number) and businesses (using their TIN). Your clients should receive a separate Form 1099-K from each PSE where the client’s gross payments or the number of transactions exceeded the reporting threshold.
How has Form 1099-K changed?
In a recent release, the IRS announced that the requirements around Form 1099-K will not change for calendar year 2022 or 2023. Instead, the changes will be phased in, beginning with 2024 tax returns.
The most significant change to the 1099-K requirements concerns the de minimis threshold for third-party payment networks. For tax years 2023 and prior, these networks are required to send a Form 1099-K if an individual or business:
- Received more than $20,000 in gross payments and
- Had more than 200 transactions
Beginning in 2024, third-party payment networks will be required to send 1099-Ks to anyone with:
- More than $5,000 in gross payments and
- Any number of transactions
Since the reporting threshold will be dramatically decreased, you can expect to see more Form 1099-Ks when filing 2024 tax returns. In addition, the new laws attempt to ensure more accurate tax returns from small businesses and individuals in the gig economy or sharing economy who didn’t meet the previous 1099-K reporting threshold.
Note that these changes only apply to third-party payment networks, and reporting requirements for card payments have remained unchanged. Payments received through a credit or debit card have never had a de minimis threshold, so payments through Zelle will not require a 1099-K.
Will my clients receive 1099-Ks for personal transactions?
Yes, third-party platforms will be required to send 1099-Ks for personal transactions. Even if your client is not a business owner, they can expect to receive Form 1099-K reporting funds through payment platforms like Poshmark, Cash App, or PayPal. Ask your clients to consider any personal transactions resulting in the receipt of payment on platforms like:
- Peer-to-peer payment platform or digital wallet
- Online marketplace (sale or resale of clothing, furniture, and other items)
- Craft or maker marketplace
- Auction site
- Car sharing or ride-hailing platform
- Real estate marketplace
- Ticket exchange or resale site
- Crowdfunding platform
- Freelance marketplace
For individuals who are not self-employed, personal transactions totaling more than $5,000 are taxable and should be reported as a capital gain. Although personal items cannot be claimed as a loss, they can be reported as a wash. There are two different ways you can account for a wash on the sale of a personal item:
- Schedule 1 Adjustments, Subtraction from Income: The amount reported on the 1099-K should match the subtraction amount.
- Form 8949, Capital Gains and Losses: The amount listed as the loss should not exceed the sale price listed on the 1099-K.
Either option will result in a $0 net being carried over to the Adjusted Gross Income. While the IRS does not seem to prefer either option, if your client reports other capital gains, you may consider reporting the wash on Form 8949 so all transactions are listed on the same form.
What should not be included on the 1099-K?
There are personal transactions that are not considered taxable. Third-party payment platforms should not include transactions for gifts or reimbursement of personal expenses like sending money between family and friends. For example, let’s say that throughout the year, your client receives over $5,000 in reimbursements from friends and family for eating out and other events via an app like Venmo. These types of transactions are excluded from reporting requirements, so your client shouldn’t receive a 1099-K for this.
Payment platforms and networks typically distinguish between business and personal transactions based on user agreements or short questionnaires that ask whether a specific transaction is for a good or service. However, your clients should review their platform accounts to access 1099-Ks and verify the accuracy of reported transactions.
If there is a transaction reported on the 1099-K that is considered a gift or reimbursement of a personal expense, your client should contact the issuer to request a corrected form.
What if your client’s 1099-K is incorrect?
If your client’s 1099-K is reported inaccurately, they should immediately contact the issuer to request a corrected tax form. If they cannot get an updated tax form promptly, they must report the form on their return and subtract the incorrect amount from their income.
The IRS advises taxpayers to report the 1099-K as “Other Income Not Reported Elsewhere” and subtract the incorrect amount as an Adjustment to Income on Schedule 1. In the description for the adjustment, note “1099-K received in error”.
What should you and your clients do with a 1099-K?
Check Accuracy of TIN or Social Security Number
Anyone who receives a Form 1099-K should always check it for accuracy and pay special attention to the TIN or Social Security number. It’s not uncommon for taxpayers to receive a 1099-K that uses their Social Security number when it should use their business TIN instead. They’ll need to get in touch with the PSE to request an accurate 1099-K before they file their return.
They’ll also want to compare the amounts on the form to their business records for the year to ensure the form is accurate.
For Individuals who are Self-Employed: File a Schedule C
Most sole proprietors and gig or sharing economy workers will receive Form 1099-Ks that list their Social Security number. The information from their 1099-K should be used to complete their Schedule C (Form 1040).
For Individuals who are NOT Self-Employed:
For the clients who receive Form 1099-K and are not self-employed, the way they will file depends on the type of income that was generated.
- File a Schedule 1, Adjustments to Income, for clients with a hobby that earns income but is not functioning as a business. Payment over $5,000 will result in a 1099-K that should be reported as “Other Income.” Each 1099-K should be reported separately, even if the transactions are related to the same hobby activity.
- File a Schedule D, Capital Gains and Losses, to report the capital gain or loss (wash) for their taxable personal transactions. The 1099-K will provide information on the platform where the payment was received and the sales price. Calculate the gain or loss using the client’s records on the item description, date sold, and purchase price.
- File a Schedule E, Supplemental Income and Loss, if your client has a rental property where they accept rent payments from tenants through a third-party payment platform. If their rental properties are owned under an LLC and are the sole owner, they can file using Schedule C.
For Businesses: File Form 1120, 1120S or 1065
If your client has a formal business structure, the 1099-Ks should list their business TIN. Then, you’ll use the 1099-K to complete a Form 1120, 1120S, or 1065 depending on their business structure. These forms are supported in the TaxSlayer Pro business suite, which is automatically included in our Classic and Premium software and can be added to a TaxSlayer Pro Web subscription.
Want to brush up on other major tax law changes brought about by the American Rescue Plan Act? See our posts Expanding the ARPA and The American Rescue Plan: What Does It Mean for Tax Preparers?
