Attention to all freelancers, independent contractors, entrepreneurs, property renters, or hobbyists who occasionally sell their creations: Starting from January, if you receive business income through payment apps or online marketplaces such as Venmo, CashApp, Airbnb, and Etsy, you may begin to receive 1099-K tax forms from these platforms. You might receive more of these forms than you are accustomed to, particularly if you have never before received one from these platforms. This trend is expected to continue and intensify by 2025 and beyond. Here's why this is happening and what you need to know before filing your 2024 taxes next year.

A regulatory change significantly increased the reporting responsibilities of third-party payment platforms to issue 1099-K forms to users, which was initially set to take effect in 2021. However, the IRS delayed the implementation for the years 2021 through 2023 and has decided to only partially enforce it for 2024 and 2025. The original regulation mandated that a third-party platform send you a 1099-K if you had more than 200 business transactions in a single year on the platform, and only if the total amount of those transactions exceeded $20,000. This meant that not many individuals were affected by this rule.

The upcoming change will impact a much larger population because it removes the transaction threshold and significantly lowers the monetary threshold to over $600 for all transactions combined. The IRS has estimated that this alteration could result in "44 million Forms 1099-K being sent to many taxpayers who wouldn’t expect one.” However, this is not the immediate reality. Last month, the IRS officially announced that for the calendar year 2024, the monetary threshold would be reduced to $5,000 and further declared that the 2025 threshold would be $2,500. It is only in 2026 that the rule is scheduled to be fully implemented at $600, five years later than initially planned.

Even at the $5,000 threshold, companies are anticipating issuing 150% more 1099-K forms than is typical, according to Wendy Walker, a vice president of regulatory affairs at Sovos, a business compliance software provider that assists companies with 1099 reporting, among other services. “So if a client (was issuing) 10,000 forms at the (old) threshold, that client is reporting an estimated 25,000 forms at the $5,000 threshold,” Walker explained.

For this year, if your gross business transactions on a specific app or platform exceed $5,000, then you, the IRS, and your state tax department should all receive a 1099-K reflecting that amount. (If you reside in states such as Maryland, Virginia, Massachusetts, or Vermont, which already have a $600 reporting threshold, this may not be new information for you.) The IRS also notes in its 1099-K guide that some companies may opt to send a 1099-K to users with business transactions below $5,000.

A business transaction is defined as a payment over that platform for a good or service, including tips, as well as rent for property. It does not include personal payments you may receive from friends or family. Some aspects will remain unchanged—such as your tax obligations and the potential for errors.

Keep in mind that the rule change does not alter your tax obligations in any way. You have always been required to report all your taxable business transactions. It’s just that now there will be increased third-party reporting to tax authorities. Familiarize yourself with how the platforms where you conduct business plan to handle their 1099-K reporting and what they may require from you to facilitate that. They may, like Venmo and Etsy, have a dedicated page addressing the issue.

If you end up receiving a 1099-K in error—for example, if the form reflects money transactions that were personal—consult this IRS document for some guidance on how to correct the situation. However, generally speaking, the IRS expects you to report information from all the 1099-Ks you receive on your 2024 return, and then make any necessary adjustments either on that return or via an amended return after you file your original by the filing deadline (which you should do to avoid penalties if you owe money).

“If (the 1099-K) is not business income, or it is for personal transfers of money between family and friends, or it is for the sale of personal items at a loss, it still has to be reported—aka, accounted for,” said David Mellem, a partner at Ashwaubenon Tax Professionals. So, review the 1099-Ks that are sent to you to ensure they are accurate. If they are not, request the issuer to send you a corrected 1099-K. Ideally, they can do so before your official filing deadline so you can include it on your return with the other 1099s you received.