With the advent of easy payment options and a boom in virtual marketplaces, some have embraced the entrepreneurial spirit and started their own side hustle, small business, or even mid-sized business. Whether these entrepreneurs have created a side hustle or full time small business, the IRS is making big changes in its reporting requirements that will affect these businesses.

For the year 2023 and prior years, the IRS had required payment apps and online marketplaces such as CashApp, Zelle, PayPal, and Venmo to send out Form 1099-K to taxpayers who received over $20,000 and had over 200 transactions. However, this was quite a high threshold and many business owners working side hustles never met such a threshold. As such, they never received a Form 1099-K and was never required to file it.

After this year ends, for the 2024 tax year, the Form 1099-K could be sent to anyone who used payment services, apps, and online marketplaces to accept payment and the threshold lowers dramatically to $5,000. Clearly, many more businesses will have to file Form 1099-K because the threshold dropped from $20,000 to $5,000. Eventually, the IRS will drop the threshold down to $600 which was set by the American Rescue Plan that passed in March of 2021. When the threshold is lowered to $600, nearly all businesses will have to file a Form 1099-K. Although the IRS is taking steps to lower the threshold in phases, it is important for business owners to be aware of these changing reporting requirements and threshold amounts.

Of course, the transactions the IRS are concerned with are those wherein individuals accept payments for selling goods or providing services. This essentially includes all those people with side hustles, small businesses, crafters (such as those on Etsy), etc. The IRS is not looking to have individuals report transactions that are familial or personal such as birthday gifts, holiday gifts, splitting the cost of restaurant bills or transportation, etc.