The Internal Revenue Service is making very important changes that you need to take into account regarding the 1099-k form.
In 2025, the changes will determine the methods of taxation and declaration of digital income. What does this mean? If you use digital payment platforms to receive money (whether because you work as a freelancer, sell things online, or simply receive occasional payments), there is something you need to know: you may have to declare this income.
What is this 1099K form?
This form is a document that the IRS uses to keep track of income that is not subject to tax withholding. This means that they are “extra” payments that you have not had to declare up to this point. However, now the IRS has reduced the limit so that you do not have to file it. We explain it in a simpler way, before you only have to worry about this form if you received more than $20,000 or made more than 200 transactions a year through online services. Now that $20,000 has become $15,000, so if you earn this money through online payment applications you will have to fill out this form.
Who should be aware of these changes?
- Freelancers or independent workers because they will have to declare all income.
- People who sell products on second-hand platforms like eBay or Facebook Marketplace, or even those who sell products on Etsy.
- Even if you only use PayPal or Venmo to split expenses with friends, you could receive this form in error (don’t worry, you won’t have to declare dinner with your friends)
Self-employed workers and small businesses will also be the most affected by these changes, because they will be forced to send reports on all income received. That is why our best advice for this type of worker is to have two accounts where they can separate personal income (a gift from a family member, a payment you make divided between friends) from business income (since the latter will have to be declared to the Administration).
How will they be affected?
Basically, the owners of these businesses will have to deal with more paperwork and procedures when filing their tax return because they will have to fill out one more document. In addition, it is most likely that by declaring more money, you will have to pay more taxes (because it will be considered taxable, of course) that is, money on which taxes will be applied.
The best thing in these cases is that, if you have doubts, you hire a financial manager who will help you deal with so much bureaucracy and thus avoid errors that can cost you even more money.
Is all the money I receive taxable?
No, but this document (1099-K) does not distinguish between real income and personal transfers, which is why we recommended a moment ago that you separate the money in your personal accounts. And if the form has errors? Well, review it as soon as it arrives and if there are incorrect amounts, contact the IRS to correct it and try to keep a detailed record of the income and expenses you make (so that it is much easier to prove which money is profit and which is not).
Also keep all the receipts you make (both for purchases and expenses) and, if you are a freelancer, you can reduce your tax burden on expenses such as the internet or the purchase of computers and similar equipment (this way you can save yourself a little financial burden too, not everything was going to be bad!)
This form doesn’t necessarily mean you have to pay more taxes, but it does mean the IRS needs to have a more complete record of your income and expenses. As we said, if you have any questions, contact a professional, and if you receive digital payments regularly, get ready to avoid surprises next tax season!