8 Tips For Business Owners to Manage 1099-K Reporting Thresholds for Payments Received

We mentioned this topic in a post in late last year here, but we want to keep you updated on the latest regarding reporting payments received via apps and through online marketplaces. This reporting rule affects business owners and even those who operate side hustles.

Background

All third-party payment apps and online marketplaces (known as third party settlement organizations) are required to report payments received for goods and services on Form 1099-K if the payment exceeds certain threshold amounts.

What’s new?

Starting in 2026, the threshold for reporting lowers to just $600.

According to the IRS, the reporting thresholds are phased in as follows:

• $5,000 in 2024
• $2,500 in 2025
• $600 in 2026 and after

PayPal, Venmo, Cash App, Square, Stripe, Amazon, Airbnb, DoorDash, etc. must issue Form 1099-K to a vendor when a payee’s aggregate payments for goods or services to that vendor exceeds these amounts in a calendar year.

When is a 1099-K formed issued?

Any time you receive payment for goods and services rendered. Specifically,

If your customers or clients pay you directly by credit, debit or gift card, you'll get a Form 1099-K from your payment processor or payment settlement entity, no matter the number of payments or dollar amount.

A payment app or online marketplace is required to send you a Form 1099-K if the payments you receive for goods or services, currently, total over $2,500. However, they can send you a Form 1099-K with lower amounts.

No matter the amount of reported payments, if you receive payments for selling goods or services, you must report all income on your tax return.

What’s not reportable on Form 1099-K?

Money you receive from friends and family as a gift or repayment for a personal expense should not be reported on Form 1099-K. Items like sharing the cost of a car ride or getting repaid by a roommate for rent or a household bill are not taxable. Be sure to note these types of payments as non-business in the payment apps when possible.

Tips for business owners

1. Segregate records: To avoid over-reporting income, it’s important for business owners to segregate personal vs. business receipts, refunds, sales tax collected, tips, and nontaxable transfers.
   
   
2. Map your payment processors: Map every payment processor used and download monthly activity reports so the year-end 1099-K will not be a surprise.
   
   
3. Remove certain costs from your return: Form 1099-K shows gross receipts. Fees, chargebacks, shipping, and state sales tax collected must be backed out on the return, otherwise taxable income is overstated.
   
   
4. Make sure your taxpayer identification number (TIN) and name match with IRS records: Some platforms backup withholding (24%) if the payee’s TIN/name mismatch the IRS database. Fixing those mismatches quickly becomes critical to liquidity.
   
   
5. Multi-state sellers should be aware of rules by state: More than 20 states automatically conform to the federal 1099-K rules; several states have even lower state-only thresholds. Multistate sellers should monitor separate sets of forms and deadlines.
   
   
6. Update accounting software: To import raw 1099-K data and automatically post offsetting merchant fees and sales tax payable.
   
   
7. Educate independent contractors: Anyone paid via third-party networks will likely receive both Form 1099-NEC (from a payer issuing cash/check) and Form 1099-K (from the platform), creating duplicates that have to be adjusted on Schedule C.
   
   
8. Choose the “friends and family” feature on apps: Consider moving personal transfers to “friends & family” (non-goods-and-services) features on apps where available, as these are not reportable.

If you have any questions or would like additional information, please contact our Tax Services team.