Common Misconceptions About the Form 1099-K Reporting Threshold for 2025 TY

If the new 1099-K reporting thresholds have you confused as an online seller, you’re not alone. But don’t worry — we are here to help you separate fact from fiction.

Below, we’ll address some common misconceptions you might have heard about these changes and the truth about how your taxes could be affected.

 

Misconception 1: This is a new tax that you will have to pay on all your profits.

The truth: This change is not a new tax imposed on online sellers but a new reporting requirement for online marketplaces. Any income derived from a sale has always been reportable income for sellers.

Recap of the IRS reporting changes

• Prior to tax year 2024, the threshold was $20,000 and at least 200 transactions. The only exceptions would be if your state has a lower threshold or you were subject to backup withholding.
• For tax year 2024, the online marketplaces are required to report gross sales that equal or exceed $5,000 with no transaction minimum. This is part of a phase-in process by the IRS to eventually implement a $600 threshold in 2025.
• Starting in 2025, the threshold is lowered again to $2,500, without any minimum transaction.
• In 2026 the threshold will be $600 unless the IRS makes more changes.

Form 1099-K reporting thresholds:

Tax Year	2023	2024	2025	2026 and beyond
Reporting Threshold (in $)	$20,000	$5,000	$2,500	$600
Minimum Transaction Requirement	200	None	None	None

Due to these changes, many sellers who have not received a Form 1099-K before will begin receiving the form in the coming tax years.

 

File 1099-K Forms

 

Misconception 2: All the transactions on 1099-K are taxable.

The truth: Taxes are imposed on the net income whereas a 1099-K only shows the gross receipts. The amounts reported on Form 1099-K do not consider the cost basis and any adjustments for fees, refunds, credits, etc.

If an item was sold at a net loss against its original cost basis, it should be reported as a loss on Schedule 1 or Schedule D. There will not be any income taxes on that particular sale.

 

Misconception 3: Payments from Friends and Family Are Reported on a Form 1099-K 

Truth: Payments from friends and family generally should not be reported on a Form 1099-K. This form is meant for payments involving goods or services—not personal transactions. Whether it’s splitting dinner, sending a birthday gift, or reimbursing a friend for a group trip, personal payments typically don’t belong on Form 1099-K. Payment apps often default to personal payments unless the sender explicitly indicates it’s for goods or services, or if the account is designated as a business account. 

 

Misconception 4: Only businesses have to report sales profits as income, and it doesn’t apply to a casual seller.

The truth: Taxable income includes any income made from sales, whether you’re a casual seller, hobby seller, or a business.

If casual selling becomes a regular profitable occurrence, the IRS may start to consider the hobby to be a formal business. For example, thrifting old furniture could start as a hobby but turn into a profitable business.

 

Misconception 5: Selling Under the Reporting Threshold Indicates No Form 1099-K 

Truth: The IRS has a federal threshold for reporting, but companies may still issue a Form 1099-K for payments under the limit. This could be due to multiple factors, such as backup withholding requirements or if your state enforces a lower reporting threshold. Always check your records and state guidelines to avoid surprises.

 

Who files Form 1099-K?

The organizations that may file and send a Form 1099-K include (but are not limited to):

• Auction sites
• Car sharing or ride-hailing platforms
• Craft or maker marketplaces
• Crowdfunding platforms
• Freelance marketplaces
• Online marketplaces (sale or resale of clothing, furniture, and other items)
• Peer-to-peer payment platforms or digital wallets
• Ticket exchange or resale sites

 

Final Thoughts

Understanding IRS Form 1099-K doesn’t have to feel like unraveling a mystery. By separating myths from facts, you can approach tax season with clarity. So, grab those records, calculate correctly, and turn tax chaos into Zen filing. After all, knowledge is the best tax prep tool you’ll ever have. 

 

File 1099-K Forms