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If you managed to score tickets for Taylor Swift’s Eras Tour but ended up reselling them instead of attending, the IRS might be interested in your earnings. For thousands of Americans, the upcoming tax season brings a new document: Form 1099-K, which reports payments made through money transfer apps, online marketplaces, or stored value cards.
Here’s an in-depth look at what this means for taxpayers and how to navigate the changes effectively.
Why Form 1099-K is Gaining Attention
Introduced as part of the American Rescue Plan Act of 2021, the changes to Form 1099-K aim to improve income reporting for transactions processed by third-party settlement organizations. These include platforms like Venmo, CashApp, StubHub, Ticketmaster, Etsy, and eBay.
This year, the form applies to anyone with gross receipts of at least $5,000. By 2026, the reporting threshold will drop to just $600, meaning even small, casual sales could trigger tax reporting.
“It’s really important to remember that not all transactions that occur like in your PayPal account are reportable. It’s only business transactions and transactions for the sale of goods,” explains Andy Phillips, vice president of The Tax Institute at H&R Block.
The IRS has clarified that individuals don’t need to pay taxes on the entire amount shown on the 1099-K. Instead, taxes are due only on the taxable gain. For example, if you sell used items like furniture for less than what you originally paid, there’s no tax liability.
Why the Changes Are Controversial
The phased lowering of the threshold for reporting has drawn sharp criticism from some lawmakers.
Republicans in the House of Representatives have denounced the policy as burdensome, calling it an “unpopular 1099-K surveillance scheme.”
“…it will operate like an additional tax on tips – making life harder for hairdressers, Uber drivers, and other gig workers just trying to make a living. The IRS is now playing politics with the new law… illegally delaying its implementation to shield Democrats from its terrible consequences,” said Rep. Jason Smith (R-Mo.), chairman of the House Ways and Means Committee.
Despite the controversy, the IRS has stated that all income should be reported on tax returns, whether or not you receive a 1099-K.
What to Do If You Receive Form 1099-K
For taxpayers unexpectedly receiving a 1099-K form, here’s a four-step guide to navigate the process:
1. Don’t Panic
Receiving a 1099-K doesn’t necessarily mean you owe taxes, especially if the transactions reported aren’t business-related. For example, if you resold concert tickets or sold homemade crafts in small quantities, the form might not reflect taxable income.
However, ignoring the form isn’t an option. If the IRS receives a copy, you must address it.
In case of errors, the IRS advises taxpayers to:
- Contact the issuer of the form (listed as the filer in the top left corner).
- Request a corrected 1099-K showing the accurate amounts or a zero balance.
- Retain all correspondence and file your taxes regardless of receiving the corrected form.
2. Keep Receipts and Records
Accurate records are essential to proving that a transaction isn’t taxable. Receipts of original purchases can demonstrate whether a gain occurred.
For business owners, expenses such as materials, shipping, and home office deductions can significantly reduce taxable income.
“If you’re self-employed or have a side gig, I encourage people to remember and gather their receipts for any expenses directly related to their businesses,” says Lisa Greene-Lewis, a tax expert at Intuit TurboTax.
3. Use Tax Software or Professional Help
Tax filing platforms like TurboTax and H&R Block simplify the integration of 1099-K forms into the tax process. The IRS also offers Free File services for individuals needing assistance.
For more complex cases, consulting a Certified Public Accountant (CPA) or tax professional is recommended.
4. Plan for the Future
With reporting thresholds set to drop to $600 by 2026, preparing for next year is crucial.
“It’s also really important to plan for the next year, and a lot of times people don’t think about it during the year. So getting to them right now and saying, ‘Hey, when you’re filing 2024 taxes, why don’t you go ahead and make a plan for this year as well?’” says Phillips.
Maintaining a record of all third-party transactions will help taxpayers avoid surprises in future filings.
