Update 12/4/24: The IRS recently released updated guidance indicating $2,500 as the 2025 threshold and $600 as the 2026 threshold. Updated below.
Original Post 11/21/23:
The IRS has announced a delay on implementation of the law requiring payment processing companies like Paypal report payments of $600+. The bureau will implement the rule with a three-prong approach:
- Year 2023: For year 2023 the IRS will delay making any changes. Companies can use the old formula and only send out a form 1099-K to someone who received $20,000 in payments AND had more than 200 transactions.
- Year 2024: The IRS will begin a phase-in of the new law and require payment processors to send a 1099-K tax form at a lower $5,000 threshold.
- Year 2025: The phase-in will continue with a $2,500 reporting threshold.
- Year 2026 and beyond: The law will be enforced at a $600 threshold.
Some important things to remember:
- This 1099-K reporting requirement does not affect whether you do or don’t owe taxes, it’s just an informational form.
- The 1099-K requirement is not only for big payment processing companies like Paypal. Even a shopping portal like Rakuten might be required, in some instances, to send a 1099-K.
- Use of direct payment services like Zelle should not cause you to get any tax form.
- Some states already have more strict requirements and people in those states have been getting the form 1099-K at lower amounts for many years. (Vermont, Maryland, Virginia, Massachusetts, Illinois)
- A business might elect to send a 1099-K at amounts lower than the IRS requirement. The discussion in this post is only what companies are federally mandated to do. A company might decide for their own reasons to issue a form 1099-K even at lower thresholds than the federal mandate.
- Businesses should not count sending money to a friend (e.g. using Paypal’s ‘friends and family’ or similar Venmo payments). However, it’s difficult to know for certain that companies will compute everything properly.
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