Editorial · January 14, 2024
Form 1099-K: Threshold Rules for Online Sellers
Form 1099-K is the tax form that payment apps and online marketplaces send when they process your sales, and for 2023 you only get one above $20,000 and more than 200 transactions. The old $600 limit is on hold. The IRS says it plans to use $5,000 for 2024 as a step toward $600.
What Form 1099-K is
A payment platform sends this form to the IRS and to you. It shows the gross amount of payments you received for goods and services in a year. Gross means before fees, refunds or shipping costs are taken out.
The form is not a bill. It is a report of money that moved through the platform. You still work out your own profit, and you report only what is taxable.
Source: IRS news release IR-2023-221, November 21, 2023.
Where the threshold stands now
The American Rescue Plan Act of 2021 set a new rule. Platforms would report payments over $600 for goods and services, with no minimum number of sales. Before that law, the form applied only when a seller had more than 200 transactions and over $20,000 in a year.
The new rule was meant to start with 2022. The IRS delayed it by a year in December 2022. On November 21, 2023, it delayed it again with Notice 2023-74. For calendar year 2023, the IRS treats the year as another transition year. Reporting is not required unless a seller receives over $20,000 and has more than 200 transactions.
Sources: IRS news release IR-2023-221, November 21, 2023; Journal of Accountancy, "Lower Form 1099-K threshold delayed again," November 2023.
The planned $5,000 step for 2024
The IRS says it is planning a threshold of $5,000 for tax year 2024. This would phase in the $600 rule instead of starting it all at once. The word to notice is "planning." The notice is not a final rule for 2024, and the IRS has asked for public comment on the $5,000 figure.
The IRS gave two reasons. It estimated that the $600 limit would lead to about 44 million forms, compared with about 14 million it receives now. And it wants more time to update Form 1040 and its schedules so that reporting is easier. Those changes are aimed at tax year 2024.
Sellers should watch for the final guidance. The IRS has said it will post updates at IRS.gov/1099k.
Sources: IRS news release IR-2023-221; Journal of Accountancy, November 2023.
What counts and what does not
The IRS draws a clear line. Personal payments are not reported on this form. Examples include birthday or holiday gifts, splitting the cost of a meal or a car ride, and paying a family member back for a bill. These payments are not taxable.
Sales are different. Selling goods or services through an online marketplace or payment app can create a form. That can happen even when you sell used items such as clothing or furniture at a loss. In that case you may get a form but owe no tax on the sale.
This is why the IRS delayed the change. It said it is hard to tell these cases apart, and it did not want to send forms to many people who would not expect one.
Source: IRS news release IR-2023-221.
How to keep records of your sales
Good records make the form easy to handle, whatever the threshold turns out to be. These habits are simple and cost little.
- Keep a running list of each sale: date, item, buyer platform and the amount you received.
- Save what you paid for each item. This is your cost, and it helps show whether you made a profit or a loss.
- Save receipts for fees, shipping and refunds. They explain why your net is lower than the gross on the form.
- Keep personal payments apart. If you can, use a different account or app for gifts and shared bills.
- Compare the form to your own list when it arrives. If a number looks wrong, ask the platform to correct it.
Even if you do not get a form, sales income may still be taxable. The form does not decide that. Your own records do.
What to do next
Check how much you were paid through each platform in 2023, and see whether it crossed $20,000 with more than 200 sales. Start your sales list for 2024 now. Then watch the IRS page for the final word on the $5,000 plan. If you have a question about your own return, ask a tax professional.
Sources
- IRS, "IRS announces delay in Form 1099-K reporting threshold for third party platform payments in 2023; plans for a threshold of $5,000 for 2024 to phase in implementation," IR-2023-221, November 21, 2023, irs.gov.
- IRS, Notice 2023-74, November 21, 2023.
- Journal of Accountancy, "Lower Form 1099-K threshold delayed again," November 2023.