8724.01 / What are the 1099-K reporting requirements that apply for business owners using certain payment apps?
Editor’s Note: The IRS advises that taxpayers who receive incorrect Forms 1099-K request a corrected form from the issuer. The name and contact information of the issuer is listed under “filer” on the top left corner of the form. Taxpayers who do not recognize that issuer should contact the “payment settlement entity” (PSE) listed on the bottom left corner (above their account number). Once they receive the corrected form, they should keep a copy, along with any correspondence from the issuer or the PSE. The IRS also reminds taxpayers that the IRS itself cannot correct the Form 1099-K. If the corrected form is not received by the tax filing deadline, the taxpayer should report the incorrect amount on Schedule 1 (Form 1040), Additional Income and Adjustments to Income, rather than miss the tax filing deadline.
Starting in 2024, PayPal, Venmo and other third party settlement organizations (TPSOs) were to be required report a taxpayer’s transactions in excess of $5,000 per year to the IRS. The change was included in the American Rescue Plan Act (ARPA), which was signed into law in March of 2021. The IRS announced the new phased-in threshold decrease in IR 2023-221 and Notice 2023-74. In Notice 2024-85, the IRS announced that 2025 was treated as a transition year. For 2025, the threshold decreased to $2,500.
Beginning in 2026, under the 2025 OBBB,the annual reporting threshold reverts to $20,000 per recipient. The $20,000 amount will be adjusted for inflation in subsequent years.
As was the case under pre-ARPA law, TPSOs only must report transactions if a person had over 200 commercial transactions for the year and the total value of those transactions exceeded $20,000. The obligations also apply to taxpayers with seasonal businesses who accept credit cards through these types of apps. Payment apps themselves provide methods for taxpayers to identify their transactions as personal or commercial.2
The IRS has now updated the FAQ on the new 1099-K reporting requirements. The guidance clarifies that taxpayers can report information from 1099-Ks separately or combine multiple 1099-Ks.Pursuant to the FAQ, the IRS clarified that taxpayers should receive a Form 1099-K if they accepted a payment from a payment card for any amount. A “payment card” includes credit cards, debit cards, and stored-value cards (such as gift cards), as well as payment through any distinctive marks of a payment card (such as a credit card number).
The FAQ also clarifies that a TPSO may still send a Form 1099-K for payments for goods or services for amounts lower than the thresholds.The reporting threshold is a federal threshold, and states may have lower thresholds. Further, TPSOs themselves may impose lower thresholds or not have a de minimis reporting threshold at all.Perhaps most importantly, the IRS reminds taxpayers that the reporting threshold has no impact on their tax obligations. Amounts are taxable even if the taxpayer does not receive a Form 1099-K under generally applicable tax law.
The IRS has also clarified that any gain on the sale of a personal item is taxable and may need to be reported on a Form 1099-K. However, the loss on the sale is not deductible. Taxpayers who received 1099-Ks for the sale of a personal items at a loss for 2022 made offsetting entries on Schedule 1 of Form 1040 by reporting the proceeds listed on Form 1099-K on Part I (Line 8z – Other Income) using the description "Form 1099-K Personal Item Sold at a Loss." The taxpayer also reported the costs, up to (but not more than) the proceeds listed on Form 1099-K on Part II (Line 24z – Other Adjustments), again using the description "Form 1099-K Personal Item Sold at a Loss." It is anticipated that future guidance will be issued on these and other issues.