As tax season approaches, the National Taxpayer Advocate has alerted taxpayers to potential changes with IRS Form 1099-K. Many individuals may encounter this form for the first time this year. The IRS has adjusted the reporting thresholds for business transactions, leading to increased scrutiny and adjustments to taxpayer reporting requirements. The threshold for 2024 is set at over $5,000, impacting transactions through platforms such as PayPal, Venmo, and eBay.
The changes stem from the American Rescue Plan Act of 2021, which Congress enacted to adjust reporting requirements. Previously, the threshold was more than 200 payments totaling over $20,000. However, for 2024, this limit has been significantly reduced to more than $5,000. By 2025, it will drop further to over $2,500, with a substantial decrease to $600 scheduled for 2026 and beyond.
The IRS aims to "avoid problems for taxpayers, tax professionals and others" by phasing in these limits. The agency has delayed the $600 threshold amid bipartisan scrutiny and feedback from the tax community. This gradual implementation provides taxpayers time to adjust and comply with new regulations.
Form 1099-K serves as a reporting mechanism for income to the IRS. April Walker, lead manager for tax practice and ethics with the American Institute of CPA, emphasizes its role:
"This is just a reporting mechanism." – April Walker, lead manager for tax practice and ethics with the American Institute of CPA.
Taxpayers receiving over $5,000 through specified apps or marketplaces may receive Form 1099-K for 2024. It is crucial to keep accurate records and receipts to substantiate non-taxable income deductions on Schedule 1. Profits from selling items must be reported on Form 8949 and Schedule D. Conversely, personal payments between family and friends are not subject to Form 1099-K reporting.
The IRS advises taxpayers unable to deduct items sold at a loss to "zero out" gross income on Schedule 1 to avoid tax liabilities on reported income. This guidance underscores the importance of meticulous record-keeping and understanding taxable and non-taxable income distinctions.