Were you one of the lucky people who scored tickets to the Taylor Swift’s Eras Tour last year? If you resold them instead of attending the show, you’re probably on the Internal Revenue Service’s (IRS) radar.
Thousands of Americans are in a similar situation and will receive a new form this tax season: the 1099-K. This form is to report payments received on money transfer apps, online marketplaces, or stored value cards. This includes business sales on apps like Venmo or CashApp, or resale platforms like StubHub, Ticketmaster, Etsy, and eBay.
This tax season, the form only applies to individuals with gross receipts of at least $5,000, but it is throwing extra confusion into an already complicated tax ecosystem.
“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,” says Andy Phillips, vice president of The Tax Institute at H&R Block.
Moreover, individuals do not have to pay tax on the entire face value of their 1099-K—it’s only on true taxable gain. So, if you have a garage sale and sell everything for less than what you paid for it originally, there’s no tax liability. As a result, it’s more important than ever to keep receipts or purchases—especially if you’re a businessperson.
“If you're self-employed, 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
No matter what, though, any income should be reported. Here’s what you need to know about the 1099-K
Why is Form 1099-K being sent?
The American Rescue Plan Act of 2021 initiated changes to third-party settlement organizations, requiring income above $600 to be reported. However, in 2023, the IRS delayed implementation to reduce anticipated confusion by an estimated 44 million 1099-K forms sent to taxpayers. That year, reporting was instead only required for payments exceeding $20,000 on an aggregate of 200 transactions.
The threshold for 2024 transactions was lowered to $5,000, and for transactions this year, it is at $2,500. By 2026, it will be $600—meaning hundreds of dollars of Americans could receive the form for something as simple as selling a couch or a few pieces of clothing online.
Republicans in the U.S. House of Representatives have slammed the new policy, labeling it the “unpopular 1099-K surveillance scheme” and calling for its repeal.
“...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, not only illegally delaying its implementation to shield Democrats from its terrible consequences, but also illegally adjusting the reporting threshold for tax year 2024,” said Rep. Jason Smith (R-Mo.), chairman of the House Ways and Means Committee, in a press release in October 2024.
The IRS does not know the specifics of the item you are selling, and third-party settlement organizations are only required to report transactions that exceed the threshold. Individuals still may receive a 1099-K for lesser transaction totals.
Regardless of whether you receive a 1099-K, the IRS says all income should be reported on your tax return.
What should you do if you get a 1099-K?
If you are one of the possibly millions of Americans who receive a 1099-K form in the next few years unexpectedly, follow these four steps to avoid getting an ill-fated audit or penalty from the IRS:
1. Don't panic
Getting a 1099-K form isn’t a reason to worry—even if the numbers are large and you don’t consider yourself a businessperson. Think back to last year: maybe you bought an expensive concert ticket and resold it after not being able to attend or sold a few pieces of custom products you made in your backyard. Above all, do not ignore the Form 1099-K. If you received it, that means the IRS did, too.
If you receive a Form 1099-K by mistake, realize that with the recent changes, errors happen more often than you think. If this includes you, the IRS encourages individuals to:
- Contact the issuer of the form as soon as possible (labeled as the filer in the top left corner of the form)
- Ask for a corrected 1099-K form that shows a zero amount
- Keep a copy of the original form and all correspondence with the issuer
- File your taxes no matter if you can get a corrected form 1099-K.
2. Collect any necessary receipts
Individuals only will have to pay tax on the amounts listed in Form 1099-K if it is a true taxable gain. To prove this, receipts of purchase may be required as they are the key pieces of evidence to prove that you don’t owe the IRS money. However, even if none of it is taxable, it should be reported to the IRS.
Greene-Lewis also notes that business owners should take advantage of all tax opportunities, including deducting expenses for home office space.
3. Integrate the form into your regular tax filing process
Tax software, such as those offered by H&R Block and TurboTax, can be a great way to mitigate confusion since the platforms will ask users if they have a 1099-K and advice on what to do. The IRS Free File service also allows filers to do this for free.
If your 1099-K situation is complicated, it may be best to consult with a trained tax professional, such as a certified public accountant (CPA).
4. Plan for next year
Now that you know the tax implications of using third-party settlement organizations, you can be ready for a future where tax will have to be paid on sales over $600. Phillips says it's more important than ever for individuals to always be thinking about the next tax season.
“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 say, hey, when you're filing 2024 taxes, why don't you go ahead and make a plan for this year as well?” he says.
No matter if it’s a one-off sale or an occasional side gig, keep records of transactions made through third-party platforms. That way, the next time you think about selling your spare Taylor Swift ticket, whether or not you have to pay taxes is the least of your concerns.
