Charles R. Kennedy, CPA, MBA
Vice President & Director of Tax Services
Vice President & Director of Tax Services
The IRS has introduced significant changes to Form 1099-K reporting requirements in 2025, expanding the number of taxpayers who must report income derived through payment apps such as Venmo and Zelle.
Starting in 2025, the reporting threshold related to third-party payment networks has been dramatically lowered to $5,000. This means if you received payments totaling $5,000 or more in 2024, regardless of the number of transactions, you will receive a Form 1099-K. Previously, taxpayers would receive a 1099-K if they had more than 200 transactions and received payments totaling over $20,000 in a year through third-party payment networks like PayPal, Venmo, or Cash App. 
Form 1099-K is a report of payments you may receive for goods or services you sold during the previous year from:
- Credit, debit or stored value cards such as gift cards (payment cards)
- Payment apps or online marketplaces such as Venmo and Zelle, which are also called third-party settlement organizations or TPSOs
These organizations are required to fill out Form 1099-K and send copies to the IRS and to you.
Key changes to 1099-K reporting in 2025
Phase-In approach
The IRS has also announced a phase-in approach for further lowering the threshold. Each year, the threshold will decrease. While the threshold for 2024 is $5,000, that will drop to $2,500 for the 2025 tax year. The threshold will continue to be dialed down until it reaches $600. By the time the threshold reaches $600, a much larger number of taxpayers will be affected, including those who may only occasionally use these platforms for business transactions.
Increased scrutiny and compliance
With the lower threshold, the IRS will have better visibility into income earned through third-party payment platforms. The IRS believes many taxpayers underreport income earned through these platforms, either intentionally or unintentionally. By lowering the threshold, the IRS aims to capture more of this income and improve overall tax compliance.
Impact on Taxpayers
More tax forms
As a result of the lower threshold, many more individuals will receive 1099-K forms. This includes freelancers, gig workers and anyone using third-party payment apps for business transactions. Even those who use these platforms for side gigs or occasional sales may find themselves receiving a 1099-K form. This increase in the number of forms issued will require taxpayers to be more diligent in tracking their income and expenses.
Potential for misclassification
One of the challenges with the new reporting requirements is the potential for misclassification of transactions. Non-taxable transactions, such as payments to friends or family, could be mistakenly reported as taxable income. Taxpayers will need to carefully review their 1099-K forms to ensure that only business-related transactions are reported. This may require keeping detailed records and seeking assistance from a tax professional to accurately report income.
Who may send you a 1099-K?
A payment app or online marketplace is required to send you a 1099-K if the payments you received for goods or services totaled more than $5,000 in 2024. However, they can send you a 1099-K with lower amounts. Whether or not you receive a 1099-K, you must still report any income on your tax return.
This includes payments for any:
- Goods you sell, including personal items such as clothing or furniture
- Services you provide
- Property you rent
The payments can be made through any:
- Payment app
- Online community marketplace
- Craft or maker marketplace
- Auction site
- Car sharing or ride-hailing platform
- Ticket exchange or resale site
- Crowdfunding platform
- Freelance marketplace
If you accept payments on different platforms, you could get more than one 1099-K.
Increased reporting burden
The new reporting requirements will place an additional burden on taxpayers to accurately track and report their income. This is particularly true for those who use multiple payment platforms or have a high volume of transactions. Taxpayers will need to be more organized and proactive in managing their financial records to avoid potential audits and penalties. This may involve using accounting software or hiring a professional to help with tax preparation.
What happens if a 1099-K is incorrect
Because many third-party payment platforms, such as Venmo and Zelle, are used for personal as well as business transactions, some taxpayers may receive 1099-K forms that include amounts that were exchanged with family and friends. These amounts should not be included in the business income you report on your Form 1040. It is essential to keep clean records of your business transactions and to know what the amounts should be.
The amount of the 1099-K should not be ignored at tax time. There is a place to report 1099-K income received but is not taxable income. This is to be reported on Schedule 1 of Form 1040.
If you have questions about how you are impacted by the Form 1099-K, contact your GT Reilly advisor.
