1099-K Reporting Threshold: 2025 is Final Transition Year
Audio version available here (2 min. 5 sec.)
It’s been a while since we last covered the IRS’s confusing rollout of the new 1099-K reporting threshold, but now we have recent confirmation about the future of this policy. According to the IRS, 2025 is officially the last transition year for the new 1099-K threshold for payments received through third-party transaction platforms.
Originally, the threshold for being issued a 1099-K by a payment platform such as Venmo or Zelle was $20,000 through 200 transactions minimum. However, with the passage of the American Rescue Plan Act of 2021, a new, much lower, threshold is to be established. Under the new law, only $600 needs to be received by a taxpayer for the income to be reported on a 1099-K, and the minimum transaction limit has been abolished. Despite this rule being slated to go into effect in 2022, the $600 threshold has yet to be imposed.
So what’s going on? 2023 saw no change to the $20,000 reporting minimum. Instead, it was declared a transition year to minimize taxpayer confusion. 2024 was subsequently also declared a transition year, but the limit was heavily reduced to only $5,000. The IRS then announced that 2025 would be the year where the $600 limit would be implemented. This has now been contradicted with the most recent announcement that 2025 will also be a transition year with the threshold once again lowered by a few thousand dollars to $2,500. With the confirmation of this move, 2026 will finally be the year where the threshold is $600 with no minimum transactions.
In the midst of widespread confusion due to several announcements pushing the new threshold down the line over and over again, the IRS has offered a few concessions. The IRS “will not assert penalties under section 6651 or 6656 for a [third-party payment platform’s] failure to withhold and pay backup withholding tax during the [2024] calendar year”. Starting 2025, penalties will be imposed if the platform fails to “withhold and pay backup withholding tax”.
We understand that all the conflicting information can be confusing. XQ CPA is committed to providing the most up to date announcements from the IRS so you can be in compliance. Follow our blog and social media closely for the latest updates, and feel free to reach out to our tax advisors for personalized advice. We are here to help you.
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