Up until just a few years ago, third-party payment vendors (such as PayPal) were not required to issue 1099-K forms for goods/services paid for through their platforms unless the total amount met or exceeded a threshold of $20,000.
Now, things are changing — and it's making tax reporting a lot more complex for contractors and vendors alike. With a better understanding of recent changes to 1099-K requirements and what they mean for tax reporting purposes, you can plan accordingly and avoid noncompliance penalties in future tax years.
For several years now, the IRS has gone back and forth on new 1099-K reporting requirements and their effective dates. Originally, the IRS had announced that the new reporting threshold for 1099-K forms would be just $600 — and that these requirements would go into effect back in 2023.
However, as many payment vendors needed additional time to adjust to these major changes, the IRS conceded that it would take a phased-in approach instead. This inconsistency, as you can imagine, has led to some confusion among vendors and recipients of 1099-K income alike.
As of 2025, the phased-in reporting threshold for 1099-K income is $2,500, which is up from $5,000 for the 2024 tax year. More specifically, vendors are required to send 1099-K forms to all individuals who receive $5,000 or more (per year) in total transactions.
At the same time, the Trump administration has announced plans to repeal the latest 1099-K reporting requirements, aiming to revert to the previous threshold of $20,000.
The U.S. House of Representatives recently passed its version of President Trump’s “One Big, Beautiful Bill” – if ultimately approved by Congress, this would repeal the $600 reporting threshold. For now, however, vendors and individuals are expected to follow the $5,000 threshold rule for reporting.
Unfortunately, 1099-K reporting isn't always so cut-and-dry. For some people receiving payments on PayPal and other third-party payment vendor apps, money that's received (and thus reported on a 1099-K) may not necessarily be taxable income.
For example, if a friend or family member sends you $20 to cover their portion of a shared meal, this might be reported as “income” on a 1099-K — but it shouldn't be subjected to taxes.
This can create some additional confusion for taxpayers, as they may feel like they'll be triggered for an audit if they fail to pay taxes on every dollar reported on a 1099-K. On the flip side, vendors are legally required to report all payments processed above the $5,000 threshold, so there's a legal obligation on both sides.
Ultimately, what’s important to remember is that all income needs to reported (and taxes paid to the IRS) — regardless of whether that income is documented on a 1099-K or meets reporting requirements.
Meanwhile, because not all payments reported on a 1099-K are taxable, individuals should be prepared to keep detailed records and to only pay taxes on legitimate income (not money from family and friends).
Whether you're worried about an audit or simply want to stay on top of your 1099-K reporting, there are a few best practices you can follow if and when you receive this documentation at the end of the tax year.
First, be sure to reconcile your 1099-K forms with your own records and check for any discrepancies or errors. If you notice any errors on your 1099-K, contact the issuing payment vendor as soon as possible to request a corrected form. Be sure to also keep proof of any payments reported on a 1099-K that are not taxable.
Another preventive measure that can be taken is to set up your professional account separately from a personal account.
Ultimately, only time will tell what 1099-K reporting requirements will look like in the coming years — especially as the U.S. Senate has yet to vote on the final bill. It is entirely possible that reporting requirements for 1099-K will once again be increased to the previous $20,000 threshold.
In the meantime, however, vendors and individuals receiving payment for goods/services through a third-party payment platform should continue to keep detailed records of all payments sent and received.
In addition, the recipients should keep in mind the amount reported on Form 1099-K represents gross income, which typically does not account for adjustments like refunds, fees or discounts. Recipients are encouraged to reconcile their accounts on a regular basis to ensure accuracy.
Likewise, those who are concerned about how changes to 1099-K reporting could affect their tax responsibility are encouraged to reach out to a knowledgeable and experienced tax advisor for personalized guidance and recommendations.