As tax season approaches, business owners need to be aware of the changes to Form 1099-K reporting requirements and how they may impact their tax returns. The IRS has implemented new rules to ensure better compliance and transparency for income received through third-party payment networks such as PayPal, Venmo, and credit card processors. Here’s what you need to know.

What Is Form 1099-K?

Form 1099-K is used to report payments processed through third-party settlement organizations and credit card companies. This includes payments received via online platforms, payment apps, and e-commerce marketplaces.

What’s Changing in 2024?

Previously, third-party payment networks were required to issue a 1099-K only if a business had more than 200 transactions and received over $20,000 in payments. However, under the new rules, the threshold has been significantly lowered. In 2024 businesses and individuals receiving more than $5,000 in aggregate payments through these platforms will receive a 1099-K.  For the 2025 year the threshold is only $2,500.

How This Affects Business Owners

1. Increased Reporting Obligations – More business owners and independent contractors will now receive a 1099-K, even if they previously fell below the reporting threshold.
2. Record-Keeping Is Essential – Business owners must maintain clear records of transactions to differentiate between business and personal payments. Personal transactions, such as splitting a dinner bill with friends, should not be taxable, but they may still be reported on a 1099-K unless properly classified.
3. Reconciling Business Income – It’s crucial to ensure that amounts reported on 1099-K forms align with actual business income. Discrepancies should be addressed on the tax return to avoid IRS scrutiny or potential audits.

Steps to Prepare for the New 1099-K Rules

• Review Transactions – Regularly monitor transactions on payment platforms to ensure business and personal payments are properly categorized.
• Keep Detailed Records – Maintain invoices, receipts, and bookkeeping records to support reported income.

If you have questions about how the new 1099-K rules affect your business, reach out to your Boyum tax professional for guidance.