After years of delays, the IRS is beginning to phase in changes to Form 1099-K. This includes how taxpayers report income from online marketplaces and digital payments.

For the 2024 calendar year, taxpayers who sell products or services via online marketplaces or are paid via a payment app for more than $5,000 will receive a Form 1099-K.

What is a 1099-K?

The 1099-K specifically reports payments and transactions made via online platforms, apps, or payment card processors, collectively known as third-party settlement organizations (TPSOs). Examples of TPSOs include PayPal and Venmo. The threshold for a TPSO having to prepare a 1099-K will be dropping to $2,500 for 2025 and $600 for 2026.

To help with the switch to these new reporting requirements, the IRS announced transition relief for TPSOs. For the 2024 calendar year, meaning for taxes due by April 2025, the IRS won't levy penalties on any TPSO that fails to withhold and pay backup withholding tax during the calendar year.

Beginning in the 2025 tax season, the IRS will assert penalties if a TPSO doesn't withhold or pay backup withholding tax. For TPSOs that began withholding during the 2024 calendar year, a TPSO must file a Form 945 and a Form 1099-K with the IRS and send a copy to the taxpayer.

History of TPSOs

The previous threshold for a 1099-K was $20,000 with more than 200 transactions. Shifting the minimum to $600 with no minimum transaction threshold was originally scheduled to begin in the 2022 calendar year. The IRS has repeatedly pushed back the deadline as a way to ease the transition.

Critics of these changes, including some TPSOs, have said the minimums are too low and will create confusion. This may also create more work for freelancers, many of whom are paid via TPSOs. That said, freelancers should already be reporting all of their income, regardless of whether they receive a 1099-K or other form.

An Experienced Tax Attorney Can Help

If you have questions about TPSOs, call Senior Partner, Tax Controversy Attorney, and former IRS attorney Brandon A. Keim at (602) 200-7399 or contact him online to discuss your options.