Major IRS Tax Change: What You Need to Know About the New Form 1099-K Rules in 2024

If you sell items online or use payment apps for business transactions, a major tax change is coming in 2024 that could impact you. The IRS has introduced a new reporting threshold for Form 1099-K, which means many Americans—especially casual online sellers—may now receive this tax form for the first time. Understanding these changes will help you stay prepared and avoid surprises when tax season arrives.

Why is Form 1099-K More Important Now?

Previously, you would only receive a Form 1099-K if you had over 200 transactions exceeding $20,000 in total payments during the year. However, in 2024, this reporting threshold has been significantly reduced to just $5,000 in total business transactions through third-party payment platforms like PayPal, Venmo, and eBay.

This change comes as part of the American Rescue Plan Act of 2021, which initially proposed lowering the threshold immediately to $600. Due to resistance from lawmakers and taxpayers, the IRS is instead rolling this out gradually.

– In 2024, the new threshold is $5,000.
– By 2025, it drops further to $2,500.
– By 2026 and beyond, the threshold will be set at $600.

April Walker, a tax expert at the American Institute of CPAs, reminds taxpayers that all income should already be reported, even if they don’t receive a Form 1099-K. However, this expanded rule could increase IRS scrutiny, especially for casual sellers unaware of their tax responsibilities.

Who Will Be Affected by These Changes?

If you frequently sell on platforms like eBay, Facebook Marketplace, or Etsy, you may receive a Form 1099-K starting in 2024. However, not every transaction is taxable.

– Selling personal items at a loss, like a used laptop or furniture, is not considered taxable income, even if it appears on Form 1099-K.
– Personal money transfers, such as reimbursing a friend for dinner or receiving a birthday gift, will not trigger this form.

On the other hand, if you sell items for a profit, that income must be reported, usually on Form 8949 and Schedule D of your tax return.

IRS Commissioner Danny Werfel has defended the gradual rollout, emphasizing that an immediate drop to $600 would have caused confusion. While this slow introduction gives taxpayers time to adjust, it also signals increased IRS attention on online sales and digital payment transactions.

How to Prepare for the New 1099-K Rules

If your business or side hustle falls under the new $5,000 reporting threshold, here’s how to stay prepared:

– Carefully review your Form 1099-K to ensure accuracy.
– Keep records of what you originally paid for any resold items. Tracking purchase prices helps ensure you correctly report profits and avoid paying unnecessary taxes.
– If you receive a Form 1099-K but the transactions were non-taxable, you can “zero it out” at the top of Schedule 1 on your tax return.
– Consider consulting a tax professional if you’re uncertain about how to report your income.

Stay Informed and Stay Ahead

For many casual sellers, receiving a Form 1099-K may feel overwhelming. However, with the proper record-keeping and tax guidance, you can ensure smooth compliance with the new IRS rules. The best approach is to track your transactions, understand what counts as taxable income, and seek professional advice if needed. By staying proactive, you’ll avoid tax season stress and ensure everything is reported correctly.