Someplace between 25% and 35% of working Americans are gig staff–both as a complement to their major revenue or as their full-time job. And for a lot of gig financial system staff, money apps and marketplaces supply a easy and handy method to obtain funds. Enter the IRS type 1099-Okay.
Third-party cost apps must challenge a 1099-Okay type to taxpayers who make greater than a sure earnings threshold—a threshold which the IRS considerably lowered for the 2024 tax 12 months. The IRS anticipates that hundreds of thousands of People will obtain a 1099-Okay type for the primary time this 12 months due to that decreased earnings threshold.
If you happen to’ve been questioning why you obtained a 1099-Okay type this 12 months, right here’s what it is advisable know.
1099-Okay historical past
Previous to the introduction of third-party cost apps and on-line marketplaces, the IRS sometimes obtained reporting about your revenue from both a W-2 type (for conventional workers) or 1099-MISC type (for contractors, freelancers, or different nonstandard employment).
The introduction of third-party cost apps like PayPal modified the panorama for taxable revenue. Though freelancers who gather funds by way of third-party apps should declare each penny of revenue (simply as workers should observe and declare their ideas), taxpayers critically underreported their revenue from third-party cost apps when the know-how was new. Uncle Sam estimates that taxpayers underreported $450 billion in 2006, which equated to a 17% noncompliance fee.
Recognizing that fashionable issues require fashionable options (or at the least a brand new tax type), the Housing and Economic Recovery Act of 2008 instituted a requirement that banks and bank card retailers report funds to the IRS by way of the brand new type 1099-Okay. The primary 1099-Okay kinds have been issued in 2012 for the 2011 tax 12 months.
Who points 1099-Okay kinds?
There are a number of several types of organizations, apps, websites, marketplaces, and platforms that could be required to challenge a 1099-Okay type. These could embody:
- Public sale websites (similar to eBay)
- Ridesharing platforms (like Uber or Lyft)
- Crafting marketplaces (similar to Etsy)
- Crowdfunding platforms (like Kickstarter)
- Freelance marketplaces (like Fiverr)
- On-line marketplaces (similar to Craigslist or Fb Market)
- Peer-to-peer cost platforms (like Venmo, PayPal, or Money App)
- Ticket alternate websites (similar to StubHub or TicketSwap)
When you’ve got earned cash by means of any of those sorts of platforms, it’s possible you’ll obtain a 1099-Okay type this 12 months—when you’ve got taken in additional than the minimal incomes threshold (see beneath).
The one generally used app that won’t challenge 1099-Okay kinds is Zelle. That’s as a result of Zelle immediately transfers cash from one checking account to a different, somewhat than holding your funds in an account for you, the best way PayPal, Venmo, and Money App do. However simply because Zelle won’t challenge a 1099-Okay doesn’t imply you’re off the hook for reporting any earned revenue you obtain by way of Zelle. You’ll have to report revenue Zelled to your account on Schedule C of your tax return.
1099-Okay minimums
Till the 2024 tax 12 months, the 1099-Okay type was solely issued to taxpayers with greater than 200 transactions on third-party cost apps who earned $20,000 or extra in revenue. This meant solely the people who have been critically dedicated to creating a dwelling by way of gig work obtained a 1099-Okay type.
That’s now altering. For the 2024 tax 12 months, if you happen to made $5,000 on a cost app, you’ll obtain a 1099-Okay, regardless of what number of transactions you cleared. This implies hobbyists and aspect hustlers are more likely to obtain a 1099-Okay this 12 months—and the chance will preserve going up. That’s as a result of the minimal revenue threshold for the 2025 tax 12 months is $2,500, and it’ll dip to $600 thereafter—and there’s no minimal variety of transactions to set off a 1099-Okay submitting.
| 2023 Tax Yr | 2024 Tax Yr | 2025 Tax Yr | 2026 Tax Yr and Past | |
| Earnings threshold | $20,000 | $5,000 | $2,500 | $600 |
| Minimal transaction requirement | 200 | None | None | None |
This implies your aunt Esther who has an Etsy storefront that sells 5 – 6 risque needlepoint tasks per thirty days might be as more likely to obtain a 1099-Okay type as an expert eBay vendor with hundreds of transactions per week.
Fixing 1099-Okay errors
Not all transactions on third-party monetary apps are taxable. When your sister Venmos you $75 to pay for her half of your mom’s birthday present, that cash isn’t taxable. However if you happen to obtain Venmo funds in your aspect gig as a photographer, that cash is taxable. This implies anybody who solely has a single cost app for private {and professional} funds might even see errors on their 1099-Okay type.
To assist make sure you’re not charged tax on nontaxable funds from family and friends, the IRS has added an area on the high of the 2024 Schedule 1 type to report any cash that was included in your 1099-Okay in error.
The spot on the Schedule 1 type additionally permits you to report 1099-Okay cash associated to private gadgets you offered at a loss. For instance, if you happen to resold courtside basketball tickets for $5,000 and accepted cost by way of Venmo, that might set off a 1099-Okay type. However if you happen to bought these tickets for $6,000 and offered them at a loss, the $5,000 you obtained isn’t taxable. You possibly can embody that $5,000 within the new area on the Schedule 1 type, and you’ll not owe taxes on it.
The way forward for 1099-Okay submitting
The IRS wasn’t fairly performed tinkering with the 1099-Okay guidelines when it lowered the earnings threshold and minimal transaction requirement. As of the 2025 tax 12 months, third-party cost apps could request your taxpayer identification quantity—which for most individuals is their Social Safety quantity. If a third-party cost platform doesn’t have your legitimate tax ID quantity, the platform has to withhold 24% of your cost for taxes.
That is just like how your taxes could also be withheld from a conventional paycheck, however it will probably come as an disagreeable shock to aunt Esther when she sells the $100 Kirk/Spock needlepoint to an fanatic and solely receives $76. Whereas the withheld quantity will be credited to the tax you owe while you file your taxes, or it might be refunded if you don’t owe any taxes, many taxpayers will desire to easily present their Social Safety quantity to keep away from the withholding altogether.
File responsibly
With extra methods to receives a commission, there are extra alternatives to underreport earned revenue. To fight taxpayer forgetfulness (each real and feigned), the IRS launched the 1099-Okay type, which requires third-party cost apps to report earnings over a sure greenback quantity.
As of the 2024 tax 12 months, anybody incomes $5,000 or extra by way of cost apps or platforms will obtain a 1099-Okay type. In 2023 and earlier, solely taxpayers who earned over $20,000 and had 200 or extra transactions received such a type. The minimal earnings threshold will go right down to $2,500 for the 2025 tax 12 months, and to $600 thereafter and there’s no minimal transaction requirement.
Getting extra tax kinds could really feel like a crappy reward for all of the onerous work you have got put into your aspect gig—however the brand new 1099-Okay submitting necessities will finally make it simpler so that you can appropriately file your taxes. And proper tax submitting retains the auditor away.
