Heads-Up for Freelancers, Self-Employed & Gig-Workers 

After Delays in 2022 & 2023, IRS Clarifies the 1099K Rules for 2024

November 2024

Form 1099K Revisions…A Brief History

First a summary of the new rules for 2024. You will receive Form 1099-K if you have any number of transactions that totaled $5,000 or more. You will only pay taxes on any profits you realize.

2022: Third-party settlement organizations (TPSOs) include payment networks such as Venmo, PayPal, Amazon, Etsy, E-Bay and Cash App that process payments for sales made by taxpayers through online marketplaces. TPSOs were required to report transactions on Form 1099-K to the IRS or the payee for transactions that totaled over $20,000 and more than 200 transactions. 

The IRS urged Congress to reduce the threshold to match the $600 limitation as required for 1099-Misc & 1099-NEC reporting. Congress responded with a provision in the American Rescue Plan (ARP) and enacted a revised threshold amount of $600 to replace the $20,000/200 transaction limits. The revision was to be effective in the 2022 tax year. 

Had it been implemented in 2022, the upshot would have been the distribution of an estimated 44 million Forms 1099-K to many taxpayers who wouldn’t expect a tax bill. 

Negative feedback from taxpayers, tax professionals and TPSOs caused the IRS to treat 2022 as a “transition year”. The intent of the delay was to reduce the potential confusion on the part of taxpayers and the added reporting burden by TPSOs. In response to widespread criticism, the IRS announced an additional delay of the new $600 reporting threshold for calendar year 2023.

2023:  The intent of the IRS decision was to plan for a threshold of $5,000 for tax year 2024 and an orderly implementation phase-in of the Congressional mandate of $600 in subsequent tax years as enacted in the American Rescue Plan. The $20,000/200 transaction limits were retained for 2023. 

“We spent many months gathering feedback from third-party groups and others, and it became increasingly clear we need additional time to effectively implement the new reporting requirements,” said IRS Commissioner Danny Werfel. “Taking this phased-in approach is the right thing to do for the purposes of tax administration, and it prevents unnecessary confusion … for taxpayers, tax professionals and others in this area. It's important that taxpayers understand what to do as a result of this reporting, and that tax professionals and software providers have the information they need to assist taxpayers.”  

2024: In 2024, you will receive Form 1099-K if you have any number of transactions that totaled $5,000 or more. You will pay taxes only on any profits that you realize. For example, purchase of an item for $1,000 and sold online in 2024 for $500 does not trigger an income tax on the sale.

As further clarification, the Agency notes that reporting requirements do not apply to personal transactions such as birthday or holiday gifts, sharing the cost of a car ride or meal, or paying a family member or another for a household bill. These payments are not taxable and should not be reported on Form 1099-K.

That said, the casual sale of goods and services, including selling used personal items like clothing, furniture and other household items for a loss, could generate a Form 1099-K for many people, even if the seller suffers no tax liability from those sales.

Takeaway

The $5,000 threshold appears to represent a reasonable transitional compromise in 2024. The revision eases the TPOS and individual taxpayer burdens on minimal transaction amounts. Additionally, increased tax revenue is captured during the interim than would have been realized from the proposed $600 benchmark.

Note: The delay of the 1099-K reporting requirement doesn’t change the fact that the IRS has always required taxpayers to report all taxable income, whether they receive a 1099-K form or not

The above presentation is meant as an overview only.  
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