IRS Restores Higher 1099-K Reporting Threshold for 2025: What It Means
The Internal Revenue Service (IRS) has announced an important update that affects millions of Americans who earn income through online platforms, small businesses, and side jobs. Starting with the 2026 tax year, the IRS will bring back the higher reporting threshold for Form 1099-K, returning to the $20,000 and 200-transaction rule that existed before 2021.
This move reverses earlier plans that would have required reporting for any account earning over $600. Many small business owners, freelancers, and online sellers have been watching closely, as this change impacts how their income will be tracked and reported.
Let’s break down what this means, who it affects, and how to prepare.
What Is Form 1099-K?
Form 1099-K is used by payment apps and third-party networks to report payments received for goods and services. Examples include PayPal, Venmo, Cash App, eBay, Etsy, and Shopify.
If you sell products, offer services, or receive payments for your work through these platforms, those earnings may trigger a 1099-K form that gets sent to both you and the IRS.
Under the previous rule, if you earned more than $600 in a year through one of these apps, you could have received a 1099-K — even for small, casual transactions. The IRS paused that lower limit after major concerns about confusion and over-reporting.
Now, with this update, the threshold is going back up to a much higher level:
$20,000 and more than 200 transactions per year
This means fewer people will receive 1099-K forms, and only higher-volume sellers will be affected.
Why the Change?
The IRS stated that the $600 reporting threshold created too much confusion for taxpayers and businesses alike. Many individuals use payment apps for personal reasons — splitting rent, sending gifts, or reimbursing friends — not for business.
The low threshold made it difficult for the IRS and payment platforms to separate personal and business payments, creating unnecessary stress for millions of users.
By reviving the higher threshold, the IRS aims to:
- Simplify the reporting process
- Reduce errors in tax filings
- Focus on actual business transactions
- Prevent unnecessary tax forms for personal transfers
Who Does This Affect?
1. Small Business Owners and Online Sellers
If you run an online business through Etsy, Shopify, or eBay, this change directly affects how your income is reported. You’ll only get a 1099-K if you meet both conditions — $20,000 in gross payments and 200+ transactions through one platform.
This provides breathing room for smaller sellers who make limited sales or run side hustles.
2. Freelancers and Gig Workers
If you’re a freelancer receiving payments through PayPal or another payment service, you’ll no longer receive a 1099-K unless your income crosses both thresholds. However, it’s important to note that you still need to report all taxable income, even if you don’t receive a form.
3. Casual Users of Payment Apps
People who use apps to split bills, pay friends, or send gifts won’t have to worry about mistakenly getting a tax form for personal transfers. This clarification removes a big source of frustration from previous years.
What Stays the Same
Even though the reporting threshold is higher, you’re still required to report all taxable income. The IRS still expects individuals and businesses to include all earnings — even if you don’t get a 1099-K.
The form is simply a reporting tool, not a rule about what is or isn’t taxable. If you earn money from selling items, offering services, or running a business, that income must still be declared.
In other words, fewer 1099-K forms doesn’t mean fewer tax responsibilities.
What You Should Do Before 2026
✅ 1. Track Your Income Accurately
Keep detailed records of your business transactions — including invoices, receipts, and digital payment histories. Even if you don’t get a 1099-K, your own records serve as proof for accurate tax reporting.
✅ 2. Separate Personal and Business Accounts
Use separate accounts for personal and business payments. This makes tracking much easier and prevents confusion at tax time.
✅ 3. Review Tax Withholding or Estimated Payments
If your earnings fluctuate, review your withholding or estimated tax payments to avoid surprises next year. The higher threshold may reduce paperwork, but it doesn’t change your overall tax obligation.
✅ 4. Work with a Tax Professional
If you sell online or receive payments from multiple platforms, consulting a tax professional can help ensure you report correctly and take advantage of any deductions available to you.
Why It Matters
The IRS’s decision to raise the threshold again is a big win for small businesses and gig workers. It reduces confusion, paperwork, and the chance of duplicate income reporting.
It also shows that the IRS is listening to taxpayer feedback and adjusting its approach accordingly. For tax professionals, this update presents an opportunity to educate clients on proper reporting practices and compliance strategies.
The change also aligns with the One Big Beautiful Bill (OBBB) framework, which aims to simplify tax processes while keeping compliance strong.
Potential Future Changes
While this decision simplifies things for now, the IRS has hinted that further modernization of payment reporting could come in future years.
Tax professionals expect:
- Better digital tools for reporting business vs. personal payments
- Clearer IRS guidance for app-based transactions
- Possible updates to Form 1099-K instructions
Staying informed will help you adapt quickly when new updates are announced.
Key Takeaways
- The 1099-K reporting threshold returns to $20,000 and 200 transactions starting in 2026.
- This affects online sellers, gig workers, and anyone using third-party payment apps for business.
- Fewer people will get 1099-K forms, but you still must report all taxable income.
- Start tracking your income now to stay compliant and ready for next tax season.
- Working with a trusted tax professional ensures you stay ahead of IRS updates.
Final Thoughts
The IRS’s revival of the higher 1099-K threshold is a welcome change for taxpayers, especially small business owners and casual sellers who were worried about unnecessary tax forms.
By returning to the $20,000 and 200-transaction rule, the IRS is simplifying compliance while focusing on meaningful business activity.
Whether you’re a business owner, freelancer, or platform user, this update is your chance to review your tax strategy, update your records, and make 2026 your smoothest filing year yet.
If you’d like to understand how this change affects your business or side income, contact your tax advisor or schedule a tax planning session.