Form 1099-K: Tax Deductions and Tax Benefits 2024/2025 Filing Season

What is the 1099-K form that I’ve heard so much about, and who receives it?

The form 1099-K is not new and has been around for decades. It is a form that reports payments you received during the year from apps, companies, platforms, or payment settlement entities – like PayPal, Venmo, eBay, ticket exchange sites, crowdfunding platforms, and potentially many others.

In late November 2023, the IRS announced that it would be delaying changes to the new $600 reporting threshold for third-party apps. This change will reduce the potential confusion caused by the distribution of an estimated 44 million 1099-K forms sent to many taxpayers who wouldn't expect one and may not have a tax obligation. As a result, third-party payment institutions are now required to report when the taxpayer receives $5,000 or more in payments during the tax year.

The IRS threshold will be $5,000 for tax year 2024, as part of a phase-in to implement the $600 reporting threshold enacted under the American Rescue Plan.

But people who earn money using third-party platforms, and from self-employment, should still work with a tax professional. This is true even if they don’t get a 1099-K, because there’s a solid chance that these people still have reportable income that needs to be on their federal income tax return. Just because someone isn’t getting a 1099-K this year doesn’t mean that the money they’ve earned isn’t income. The change is to who will receive a 1099-K form, not to what is considered taxable income. If someone fails to report taxable income, they risk penalties and interest from the IRS.

Come 2024, people who use these apps should make sure that their accounts and profiles are set up correctly as personal or business accounts. Personal transactions aren’t reportable income for a tax return – like sending money for gifts or for sharing the cost of a meal – but the casual sale of goods and services is.

Who is likely to get the 1099-K form?

For tax year 2024, the 1099-K form is for anyone who receives over $5,000 from at least one business transactions. So, think about whether you’re a gig worker, freelancer, or self-employed. The bottom line: the 1099-K form is for people who earn money and get paid using these payment app platforms. Again, it’s not for the average person who is sending money to their friends and family for personal transactions. Personal transactions or person-to-person transactions are exempt from reporting.

Who will send you the 1099-K form?

These forms will come from the apps and companies you use – PayPal, Venmo, and similar companies. It will not come from the IRS. But be cautious: the IRS will also receive the forms that the businesses send you. Like other tax forms, 1099-Ks must be provided to you by January 31. So be on the lookout for them – in the mail, online, or in the apps themselves. And just because you don’t receive the form, but have business transactions, that doesn’t mean you don’t have the reporting responsibility. You need to file an accurate tax return with this information, or risk issues down the road.

How much do I have to sell to get a 1099-K?

The easiest way to understand this is, if you’re selling something for a profit, you’re earning an income. Hobby or an official business, full time, part time, on the side, with a regular job or not, it does not matter. If you sell goods and services and use a third-party platform, you may get a 1099-K from the company this year, if you received over $5,000 from any transactions.

If I earned less than $5,000 and don’t get a 1099-K form from any company, do I still need to report the income to the IRS?

Yes. This is where more confusion lies with self-employment income. Earnings have always been considered taxable to the IRS; this is not a new rule. Even if you don’t receive a 1099-K form (or a W-2 for “traditional wages” for that matter) you should report all earnings to the IRS on your federal income tax return.

Bottom line: Even though the IRS changed the threshold for who receives a 1099-K form, if you’re still earning money and receiving it from an app, it should be reported. Even if you don’t receive a 1099-K, but know that you earned money from your freelance, gig work, or self-employment, it must be reported on your tax return. If you don’t report earned income, you risk penalties and interest with the IRS and possibly your state. That’s why it’s so important to keep good records of your income and talk with your Tax Pro about everything.

Who is getting a 1099-K in 2024?

For tax year 2023, the only taxpayers who should get a 1099-K are those who received over $20,000 from more than 200 transactions. In 2024, taxpayers using a third party will receive a 1099-K form when they receive $5,000 using a payment processor. This is  part of a phase-in to implement the $600 reporting threshold enacted under the American Rescue Plan.

How do I keep good records so I know what should be reported to the IRS in my tax return and what should be on the 1099-K form you receive?

Maintaining accurate records is key for filing a federal and state tax returns. Save all business receipts, track all income paid to you, and organize financial documents throughout the year. If you keep good records year-round, this will make filing your tax return easier, and less of a chance that the IRS will audit your return. Don’t count on just looking back in your transactions within the app or payment settlement entity, because it might not all be in one place.

I received a 1099-K that reports money I earned on it…is it all taxable?

The simple answer is...no. What’s reported on the 1099-K is the gross amount of money that you should have received, assuming that it was earnings from business transactions. But the full amount likely isn’t all taxable because you have expenses that can be deducted from this amount and that’s what’s actually considered taxable by the IRS.

What is a tax deduction?

Deductions reduce the total taxable income you’ve earned before you calculate the tax you owe the IRS. Credits, on the other hand, can increase your tax refund OR reduce the amount of tax you owe. Deductions related to the 1099-K form are any business-related expenses. If you’re a gig worker and have self-employment income, you probably have business expenses that can be deducted.

For example, let’s say you’re a dog walker. You can deduct business-related expenses that are for your business. This includes money used for marketing efforts, pet care supplies, business insurance, and more.

Essentially, if you have self-employment income and receive a 1099-K, it means you can take advantage of deductions that you can’t with a traditional wage job that has income reported on a W-2.

If I receive a 1099-K related to gig work or freelance activity, what are some common tax deductions that I can claim?

If you have self-employment income related to your gig and freelance activities, you have greater opportunity to deduct expenses than if you worked for an employer. There are numerous deductions that could qualify, if they’re related to your business expenses and operations.

Some of the most common tax deductions for self-employed taxpayers include:

• The cost of supplies, tools, and equipment needed to do your job
• Marketing costs
• Business mileage
• Operating a home office
• Tax preparation fees

What other tax benefits are there for gig workers?

There are some more benefits you should know about, like the fact that you can lower your tax bill if you have a solo 401(k) retirement plan, and make contributions. Plus, if this is your first year, you can deduct up to $5,000 in business startup costs.

As a self-employed taxpayer with income from gig work or freelance, how do I file my federal tax return?

A 1099-K form can complicate your taxes, and it’s smart to get professional advice. If you have any transactions or receive a 1099-K form for the first time, don’t go it alone. If mistakes are made, it could be costly and give you major headaches with the IRS.

We have Tax Pros across the country that are experts in federal, state, and local tax laws so you don’t have to go it alone if you feel overwhelmed and they will help you file your tax returns. Find an office near you and work with a Tax Pro today.

About the Author

Mark Steber is Senior Vice President and Chief Tax Information Officer for Jackson Hewitt. With over 30 years of experience, he oversees tax service delivery, quality assurance and tax law adherence. Mark is Jackson Hewitt’s national spokesperson and liaison to the Internal Revenue Service and other government authorities. He is a Certified Public Accountant (CPA), holds registrations in Alabama and Georgia, and is an expert on consumer income taxes including electronic tax and tax data protection.

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