The 1099-K Mess: The IRS Just Changed the Rules (Again)
You’re going to get these calls. Trust me…
Your client will receive a Form 1099-K, and they'll have no idea why.
They don’t own a business.
They don’t sell on eBay.
They just use Venmo to split rent with a roommate.
But now, they’re worried the IRS thinks they owe taxes on money that was never income in the first place!
This is the new reality for millions of Americans.
Let’s break it down.
Why This Matters
The IRS’s Form 1099-K was originally created in 2008 to track income from online businesses—think eBay sellers, Etsy shop owners, and gig workers.
Back then, the IRS set a reasonable threshold: $20,000 in payments and 200 transactions before a taxpayer would receive a 1099-K.
That made sense.
But in 2021, the government decided to slash the reporting threshold.
The new rule?
If someone receives just $600 in total payments through a third-party payment platform (like PayPal, Venmo, or Zelle), they get a 1099-K.
No transaction minimum.
Just $600.
This triggered immediate backlash.
It meant that millions of people who had never dealt with this form before would suddenly be getting IRS notices—often for non-taxable transactions like splitting a dinner bill or selling used furniture at a loss.
The IRS realized it had a problem.
Instead of immediately enforcing the $600 threshold, they introduced a phased approach:
2024 tax year: The threshold is temporarily set at $5,000.
2025 tax year: The threshold will drop to $2,500.
2026 and beyond: The final threshold of $600 takes effect.
The IRS says this will help ease the transition.
It won’t.
This is only delaying the inevitable flood of confused taxpayers who don’t understand why they’re being taxed on personal transactions.
What This Means for Your Clients
Here’s what your clients need to understand:
1. Not Everything on a 1099-K Is Taxable
Many clients assume that if they receive a 1099-K, they taxes.
That’s not always true.
Personal transactions (like reimbursing a friend for dinner) aren’t taxable.
Selling personal property at a loss isn’t taxable. If your client sells their old couch for $300 (which they originally bought for $1,000), that’s not income. But the 1099-K won’t say that—it just reports the transaction total.
Crowdfunding may not be taxable. If a client raises money through GoFundMe, it depends on whether the funds were gifts or given in exchange for a product or service.
Clients must keep records to prove what’s taxable and what’s not.
Otherwise, they risk overpaying.
2. The IRS Will Expect This Income to Be Reported
The IRS receives a copy of every 1099-K issued.
If your client doesn’t report the amount, the IRS will automatically assume they’re hiding income.
But if that income includes non-taxable transactions, they’ll need to "back out" those amounts on their return to avoid overpaying.
Most taxpayers won’t know how to do this.
3. Incorrect 1099-Ks Will Happen—And Fixing Them Is a Pain
Clients who receive a wrong 1099-K can’t call the IRS to fix it.
The IRS won’t help.
Instead, they’ll have to contact the payment processor directly and convince them to issue a corrected form.
This is not an easy process.
Which means many clients will end up overpaying taxes on incorrect amounts—unless they have someone guiding them.
TL;DR: The Key Takeaways
The IRS is phasing in a lower 1099-K threshold: $5,000 in 2024, $2,500 in 2025, and $600 from 2026 onward.
Millions of taxpayers will receive 1099-Ks for the first time—many for non-taxable transactions.
Clients will assume all 1099-K income is taxable (it’s not).
Incorrect 1099-Ks will happen, and fixing them is a nightmare.
Most taxpayers don’t know how to properly report or dispute these forms.
Your clients need expert guidance to avoid overpaying.
Let’s Talk…
This shift isn’t just about new tax forms—it’s about how unprepared most taxpayers are for these changes.
Have you seen this already?
What are you doing to prepare your clients?
Let me know in the comments.
