Heads up if you're a freelancer or small business owner: The IRS may need something new from you
New Tax Reporting Rules for Digital Payment Platforms #
Changes to 1099-K Reporting Coming in 2024 #
Freelancers, independent contractors, business owners, property renters, and hobbyists who sell creations online should prepare for changes in tax reporting. Payment apps and online marketplaces will begin issuing more 1099-K forms starting January 2024.
The IRS has implemented a phased approach to new reporting requirements for third-party payment platforms. For the 2024 tax year, platforms must issue 1099-Ks for users with more than $5,000 in gross business transactions. This threshold will drop to $2,500 in 2025 and $600 in 2026.
These changes are expected to significantly increase the number of 1099-K forms issued. Some estimates suggest a 150% increase in form issuance compared to previous years.
The new rules apply to business-related income, including payments for goods, services, tips, and property rentals. Personal transactions between friends and family are not affected.
It’s important to note that these changes do not alter existing tax obligations. All taxable business income has always been required to be reported. The new rules simply increase third-party reporting to tax authorities.
Users of payment platforms should familiarize themselves with how each service plans to handle 1099-K reporting. Some platforms may have dedicated pages explaining their approach.
If a 1099-K is received in error or reflects personal transactions, there are steps to correct the situation. However, the IRS generally expects all received 1099-Ks to be reported on tax returns, with adjustments made either on the original return or through an amended filing.
Taxpayers should carefully review any 1099-Ks received for accuracy. If errors are found, they should request a corrected form from the issuer, ideally before the tax filing deadline to avoid potential penalties.
These new reporting requirements aim to improve tax compliance and provide more accurate income information to the IRS. While they may result in additional paperwork for some taxpayers, they do not change the fundamental obligation to report all taxable income.