Estimated reading time: 3 minutes
For years, small sellers, side hustlers, freelancers, and casual online entrepreneurs faced mounting uncertainty over how and when payment platforms would report their income to the Internal Revenue Service (IRS). That uncertainty centered on a tax form most people don’t think about until tax season hits: Form 1099-K.
In 2021, the American Rescue Plan Act lowered the reporting threshold to $600 in payments, with no minimum number of transactions. That dramatic reduction threatened to force millions of casual sellers into IRS reporting and potentially cause confusion over tax filings. In response, the IRS delayed implementation and engaged in a phased approach to the rule. Most recently, Congress reversed the change and restored the original reporting standard of more than $20,000 in gross payments and more than 200 transactions per year for third-party settlement organizations (TPSOs), such as PayPal, Venmo, Etsy, eBay, Stripe, and others.
What Changed: Reinstating the 1099-K Threshold
Before 2021, a payment app or marketplace was required to issue Form 1099-K to a seller only if:
- Gross payments exceeded $20,000, and
- There were more than 200 transactions in a calendar year.
Under the American Rescue Plan Act, this threshold was lowered to $600. The intent behind that change was to improve income reporting and tax compliance, but many taxpayers and platforms raised concerns about confusion, administrative burden, and unnecessary forms for routine transactions (for example, selling a used couch once or receiving a few hundred dollars for freelance work).
In July 2025, a new federal law—often referred to as the “One Big Beautiful Bill Act”—was signed that repealed the $600 reporting rule and reinstated the previous threshold of $20,000 and 200 transactions. This reversal is now reflected in updated IRS FAQs and guidance.
Why the $20,000 Threshold Matters
- Reduced Administrative Burden
For many small sellers and part-time earners, having every payment over $600 automatically generate a Form 1099-K was burdensome. It meant more forms to reconcile, more tax software entries, and greater confusion during tax preparation. Reinstating the higher threshold significantly reduces the number of unnecessary forms sent to taxpayers and streamlines the process.
- Clarity for Casual Sellers and Side Hustles
Under the old $600 rule, someone selling occasional items online or generating modest income through a side hustle could receive a 1099-K, even if they didn’t owe additional tax. The restored threshold focuses information reporting on more substantial business activity (i.e., consistent sellers or larger volume businesses).
- Tax Compliance Still Required
It is essential to understand that income remains taxable whether you receive a Form 1099-K or not. The form is an information return that helps the IRS match what platforms report to what taxpayers file on their returns. Even if you don’t receive a 1099-K, all income from business activity or sales must still be reported and taxed appropriately.
- Focus on Meaningful Reporting
The higher threshold aligns information reporting with commercial activity rather than occasional or incidental transactions. By emphasizing substantial volume, it improves the quality of data entering the IRS system without burdening individuals who are not operating as de facto businesses.
Practical Takeaways for Sellers and Entrepreneurs
Track all income regardless of 1099-K issuance. You are responsible for reporting income even if no form is sent.
Understand platform reporting. Payment apps and marketplaces will send 1099-Ks based on the threshold and transaction criteria, but their internal practices may vary.
Keep thorough records. Documentation of gross sales, fees, refunds, and expenses will be indispensable come tax season.
Consult a tax professional. Especially if you operate multiple channels or have complex sales, professional guidance ensures compliance and maximizes deductions.
