In the recent IR-2024-299 released at the end of November, the IRS indicated that the 1099-K threshold is delayed again. The 1099-K form is used by Third Party Settlement Organizations (TPSOs) like Venmo and similar cash apps and credit card processing vendors.
The thresholds will be:
2024 – $5,000
2025 – $2,500
2026 – $600
Previously, the threshold was $20,000 and/or 200 transactions. This significant reduction means more scrutiny as a larger number of individuals will be required to report transactions on their tax returns, not just businesses.
For example, imagine you are the captain of a soccer team and collect $50 from each player (15 players on the roster) via Venmo to cover league fees. In total, you receive $750 via Venmo. In 2026, this amount exceeds the $600 threshold, and you will receive a 1099-K. While these funds are simply being collected and then spent on league expenses, you will likely need to report the gross amount of payments on a Schedule C and offset it with the related expenses, so the net taxable income is zero.
This reduction in the reporting threshold could impact individuals who transfer money for social activities (e.g., dinners, sports, or shared expenses) and are not gig workers. If you receive a 1099-K form, it is crucial to report it accurately on your tax return to avoid discrepancies with the IRS.
Why the Change Matters
The IRS aims to close the tax gap by ensuring that all income, including small transactions processed through TPSOs, is accurately reported. This change targets not just businesses but also individuals using these platforms for various purposes. It places an additional burden on taxpayers to maintain detailed records of their transactions and classify them correctly.
How to Prepare for the Change
- Maintain Accurate Records: Keep a log of all transactions on TPSOs, especially distinguishing between personal and business-related payments.
- Understand Reporting Requirements: Familiarize yourself with Schedule C if you need to offset gross payments with expenses.
- Consult a Tax Professional: If you’re uncertain about how to report 1099-K income, seek guidance from a CPA or tax advisor to ensure compliance.
As the thresholds continue to decrease, understanding how these rules affect you becomes increasingly important. Whether you’re an individual transferring money for social reasons or a small business owner, staying informed and proactive can help you navigate these changes effectively.
Link Journal of Accountancy – IRS again delays effective date of $600 threshold for Form 1099-K reporting
