Understanding the New 1099-K Reporting Requirements for 2025

Hello Business Owners,

As the digital economy continues to evolve, so do the tax reporting requirements. Starting in 2025, significant changes are coming to the Form 1099-K reporting thresholds, which could affect many small business owners who receive payments through platforms like PayPal, Venmo, Etsy, or eBay.

At AKtaxbiz, we want to help you fully understand these changes and prepare your business so you remain compliant and avoid surprises during tax season.

What Is Form 1099-K and Why Does It Matter?

Form 1099-K is issued by payment settlement entities (like PayPal or Stripe) to report the gross amount of payments they processed for you during the year. The IRS uses this information to verify that businesses report all their income properly.

Previously, this form was only required if you received more than $20,000 in payments and had over 200 separate transactions through these platforms in a calendar year. This high threshold meant many smaller sellers or freelancers were not issued a 1099-K.

What Are the New Reporting Thresholds?

Beginning in 2024, the IRS is lowering these thresholds in stages to catch more small businesses and freelancers under this reporting requirement:

2024: Platforms must issue a 1099-K if you receive more than $5,000 in total payments, regardless of transaction count.
2025: The threshold drops further to $2,500 in gross payments, again without a minimum number of transactions.
2026 and beyond: It falls to just $600 (IRS, 2024; Grant Thornton, 2024).

This phased approach means that many more business owners will receive a Form 1099-K starting in 2024, with a much larger increase in 2025 and 2026.

How Do These Changes Affect Small Business Owners?

More Reporting, More Paperwork
Lower thresholds mean more businesses must handle Form 1099-K reporting. If you’re selling products or services and receive payments via third-party platforms, you’re likely to get this form even if you’ve never gotten one before.
Income Verification and IRS Cross-Checking
The IRS will match the income reported on your tax return with the payments reported on 1099-Ks. If there’s a mismatch, it could trigger an audit or inquiry.
Backup Withholding Risk
If you don’t provide your correct taxpayer identification number (TIN) to the payment platform, they may withhold 24% of your payments to cover taxes (IRS, 2024). This can seriously affect your cash flow.

Non-Taxable Sales Must Be Tracked Separately
The 1099-K reports gross payments, which may include non-taxable transactions, such as personal sales at a loss or gifts. It’s your responsibility to keep accurate records to exclude these from your taxable income.

What Steps Should You Take to Prepare?

Provide Your Taxpayer Identification Number (TIN)
Make sure your payment accounts have your correct TIN to avoid unnecessary tax withholding.
Keep Detailed and Organized Records
Maintain invoices, receipts, and transaction records to accurately reconcile with the 1099-K you receive.
Review Your 1099-K Form Carefully
Check for any errors or payments that shouldn’t be counted as income. Contact the payment platform promptly if you notice mistakes.
Consult a Tax Professional
The new rules can complicate tax filing. Working with a tax expert ensures you remain compliant and identify possible deductions or credits.

How AK Tax & Business Services Can Help

These changes can seem overwhelming, but you don’t have to navigate them alone. Our experienced team can help you:

Interpret and comply with the new 1099-K requirements
Reconcile your payment records with the IRS forms
Improve your bookkeeping systems to track taxable and non-taxable income accurately
Develop tax strategies to minimize liabilities and maximize savings

Contact Us Today!

Let AK Tax & Business Services help you stay ahead of tax reporting changes and keep your business finances on track.

Schedule your free consultation today

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Sources:

IRS. (2024). Form 1099-K FAQs. https://www.irs.gov/newsroom/form-1099-k-faqs
Grant Thornton. (2024). IRS sets threshold for Form 1099-K in 2025. https://www.grantthornton.com/insights/alerts/tax/2024/flash/irs-sets-threshold-for-form-1099k-in-2025

Understanding the New 1099-K Reporting Requirements for 2025