The amounts reported on Form 1099-K include only payments received for goods or services. The form does not include adjustments for fees, discounts, shipping or refunds. Those amounts are not “income” in the eyes of the IRS but can be deducted from the amounts reported on Form 1099-K when the tax return is filed.
Clients who use sites like Venmo and PayPal to transfer funds for personal purposes should not see those amounts reported on Form 1099-K. However, that does make it important to carefully review the information contained on the form. If the amounts reported do not match the taxpayer’s records, the taxpayer can contact the third-party provider and request a corrected form.
While it’s important for taxpayers to understand the changing law governing Form 1099-K issuance, it’s also important for them to remember that the IRS expects taxpayers to report all income regardless of whether they receive a Form 1099-K. Even if clients do not cross the applicable threshold, they are still responsible for reporting income earned through online sales and side hustles.
Sale of Personal Items
One particularly confusing area involves situations in which taxpayers sell personal items online via platforms like eBay and Poshmark. In prior years, the $20,000 threshold was high enough that most of these online sellers didn’t receive Forms 1099-K.
However, with the decreased thresholds, these taxpayers may now see sale proceeds reported on Form 1099-K. When taxpayers sell used personal goods, they’re taxed only if they sell them at a profit. Taxpayers generally determine gain or loss by subtracting the sale price from the amount they paid for the item.
Gain on the sale of items that were previously held for personal use is taxable. However, losses are not deductible. These transactions must be reported on Form 8949, Sales and Other Dispositions of Capital Assets, and Form 1040, U.S. Individual Income Tax Return, Schedule D, Capital Gains and Losses.
The IRS has directed taxpayers who sold personal items at a loss to make offsetting entries on Form 1040, Schedule 1, Additional Income and Adjustments to Income, by:
- reporting the proceeds as listed on Form 1099-K on Part I – Line 8z – Other Income, using the description “Form 1099-K Personal Item Sold at a Loss” and
- reporting their costs, up to but not more than the Form 1099-K amount, on Part II – Line 24z – Other Adjustments, using the description “Form 1099-K Personal Item Sold at a Loss.”
Conclusion
Millions of taxpayers who have never received a Form 1099-K are likely to begin receiving these forms in 2024 and subsequent years. The IRS is releasing guidance and examples on a rolling basis to help these taxpayers understand their reporting obligations — and advisors should pay close attention to the details.
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FAQs
What You Need to Know. Starting this year, earnings of $600 or more via online platforms like PayPal, Venmo and Etsy must be reported to the IRS on Form 1099-K. Legislation in 2021 dropped this threshold from $20,000. After years of delay, the change becomes effective for tax year 2024.
What are the 1099-K reporting requirements for 2024? ›
What this means. This means that for 2023 and prior years, payment apps and online marketplaces are only required to send out Forms 1099-K to taxpayers who receive over $20,000 and have over 200 transactions. For tax year 2024, the IRS plans for a threshold of $5,000 to phase in reporting requirements.
What are the changes for 1099 for 2024? ›
Starting Jan. 1, 2024, filers of 10 or more Forms 1099 must file the forms electronically and may be subject to penalties if paper forms are filed unless a waiver is requested. To file 1099 Forms electronically this year, filers must request a new IR-TCC code from the IRS, which can take up to 45 days to obtain.
What is the big change regarding Form 1099-K? ›
Third-party payment platforms and online marketplaces won't be required to report 2023 transactions on a Form 1099-K to the IRS or online sellers for the $600 threshold. Instead, the previous 1099-K reporting threshold of $20,000 in payments from over 200 transactions will remain in effect for 2023.
What is the new rule for 1099-K? ›
You just won't receive a 1099-K form from third-party apps unless you receive over $20,000 in payments across over 200 transactions in 2023. Instead, you may receive 1099-NECs from any businesses you work with.
What are the eligibility requirements for 1099-K? ›
Reporting threshold
For tax year 2023, payment apps and online marketplaces are required to file a 1099-K for personal or business accounts that receive over $20,000 in payments from over 200 transactions for goods or services. There are no changes to what counts as income or how tax is calculated.
Who changed the 1099-K requirements? ›
The American Rescue Plan of 2021 changed the reporting threshold requirement for payment apps, also known as third-party settlement organizations. The IRS announced that the new Form 1099-K reporting threshold will start in tax year 2023.
At what age is Social Security no longer taxed? ›
Social Security income can be taxable no matter how old you are. It all depends on whether your total combined income exceeds a certain level set for your filing status. You may have heard that Social Security income is not taxed after age 70; this is false.
Are taxes changing in 2024? ›
The income tax brackets for individuals are much wider for 2024 because of inflation during the 2023 fiscal year. Tax rates are unchanged. To view income tax brackets for the 2023 and 2024 tax years, see 2023 and 2024 Tax Brackets and Federal Income Tax Rates.
Will tax returns be bigger in 2024? ›
So far in 2024, the average federal income tax refund is $2,850, an increase of 3.5% from 2023. It's not entirely unexpected: To adjust for inflation, the IRS raised both the standard deduction and tax brackets by about 7%.
Yes, the Form 1099-K reporting threshold doesn't affect whether payments are taxable or whether a tax return must be filed. All income, no matter the amount, is taxable unless the tax law says it isn't – even if you don't get a Form 1099-K.
Will Zelle be taxed in 2024? ›
Does Zelle report to the IRS? If you have more than 200 transactions or $20,000 in taxable income on another service in 2023, the IRS will be able to find out about it through a Form 1099-K sent by that platform. For tax year 2024, the threshold falls to $5,000 in goods and service payments.
Is the IRS delay 1099-K rules for ticket sales announces new $5000 threshold for 2024? ›
The decision to treat 2023 as a transition year comes in response to feedback from taxpayers, tax professionals, and payment processors. The IRS is also planning a phased-in approach, with a $5,000 threshold set for 2024 to gradually implement the reporting requirements introduced under the American Rescue Plan.
What amount triggers a 1099-K? ›
The objective is to ensure people report their business income on their tax returns. An online network is required to file and send a 1099-K if it transfers at least $20,000 to you during 2023.
What should I do with 1099-K? ›
If you're self-employed or work as an independent contractor, you typically report your income, including that from forms 1099-K, on Schedule C of your Form 1040, individual income tax return.
What is the $600 rule? ›
The new ”$600 rule”
Under the new rules set forth by the IRS, if you got paid more than $600 for the transaction of goods and services through third-party payment platforms, you will receive a 1099-K for reporting the income.
Does 1099-K need to be reported? ›
Report Form 1099-K payments and other income on your tax return. You must report all income you receive on your tax return. This may include the gross payment amount on Form 1099-K and amounts on other reporting documents like Form 1099-NEC or Form 1099-MISC.
What is the federal exemption for 2024? ›
Effective January 1, 2024, the federal estate and gift tax exemption amount increased from $12.92 million to $13.61 million per individual (a combined $27.22 million for a married couple), representing an increase of $690,000.
What is the annual exclusion amount for 2024? ›
Annual Gift Tax Exclusion
The IRS allows individuals to give away a specific amount of assets or property each year tax-free. For 2024, the annual gift tax exclusion is $18,000, meaning a person can give up to $18,000 to as many people as he or she wants without having to pay any taxes on the gifts.
What taxes do you use for 2024 fafsa? ›
The 2024–25 Free Application for Federal Student Aid (FAFSA®) form asks for your (the student's) and your family's 2022 income and tax information. enables submitting a FAFSA form before attending school.
