1099-K Tax Forms Explained: Freelancers, Independent Contractors, Business Owners, Property Renters, and Online Sellers

If you’re a freelancer, independent contractor, property renter, or someone who occasionally sells items through online platforms like Venmo, Cash App, Airbnb, or Etsy, you may soon start receiving 1099-K tax forms. These forms have become increasingly relevant due to changes in tax regulations, and understanding what they are, who needs them, and how they impact your taxes is crucial.

What is a 1099-K Form?

A 1099-K form is a tax document that reports income received via third-party payment networks or online marketplaces. It’s issued to individuals who receive payments exceeding certain thresholds—primarily for business-related transactions—through payment apps or online platforms.

Previously, 1099-K forms were primarily issued to businesses and merchants, but changes in tax laws have broadened the scope, particularly targeting freelancers, independent contractors, property renters, and occasional sellers who might not always think of themselves as traditional “businesses.”

Who Needs a 1099-K Form?

The IRS introduced new reporting thresholds starting January 1, 2023, that have expanded the criteria under which individuals might receive a 1099-K form. Here’s who might receive one:

1. Freelancers and Independent Contractors
   If you provide freelance or independent contractor services and are paid through platforms like Venmo, PayPal, or Cash App, you might receive a 1099-K if your annual payment transactions exceed $600 (previously it was $20,000 or 200 transactions). This applies whether you’re invoicing clients for services like graphic design, writing, consulting, or any other gig-based work.
2. Property Renters (Airbnb, VRBO, etc.)
   If you rent out property on platforms like Airbnb, VRBO, or others and receive rental payments through those platforms, you could receive a 1099-K if you receive more than $600 in rental income in a year.
3. Hobbyists Selling Items Online (Etsy, eBay, etc.)
   If you sell items occasionally on platforms like Etsy, eBay, or Facebook Marketplace and receive payments via these platforms, a 1099-K form might be issued if your annual sales exceed $600.
4. Business Owners
   If you operate a business that accepts payments through third-party networks such as Venmo, Cash App, or online marketplaces, you’ll likely receive a 1099-K if your payment volume exceeds the new threshold of $600.

What Does a 1099-K Form Report?

A 1099-K form reports the total amount of payments you received for goods or services through third-party payment networks. It includes:

• Gross payments: The total amount of income reported to the IRS.
• Payment processor information: The platform that facilitated the transactions (e.g., Venmo, PayPal, Etsy, etc.).

Unlike other tax forms, such as W-2s, 1099-Ks typically don’t provide information about expenses or deductions, meaning you’ll need to report the total income from these platforms on your tax return.

How Do You Receive a 1099-K Form?

1. Payment Threshold Met: If you receive more than $600 in payments through any third-party network, the platform is required to issue you a 1099-K.
2. No Automatic Delivery: Some platforms may automatically issue a 1099-K if you meet the threshold, while others may not. It’s important to check your payment processor’s documentation and your account settings.
3. Filing and Reporting: Once you receive the 1099-K, you’ll need to report this income on your tax return, typically on Schedule C if you’re a business owner or independent contractor, or Schedule E if you’re renting property.

What Should You Do With Your 1099-K?

1. Include It in Your Taxes: Report the income listed on the 1099-K form on your tax return, even if it doesn’t reflect your total net earnings.
2. Understand Deductions: Keep track of expenses related to the income earned through these platforms. You may be able to deduct costs such as business-related expenses, rental property expenses, or other costs associated with your online sales.
3. Consult a Tax Professional: Given the new thresholds and changes, it’s advisable to consult with a tax professional to ensure compliance and maximize deductions.

Conclusion

If you’re a freelancer, independent contractor, property renter, or someone who sells items on platforms like Venmo, Cash App, Airbnb, or Etsy, you may receive a 1099-K form starting January 1, 2023. Understanding what this form means, how it impacts your taxes, and what steps to take is crucial for ensuring you remain compliant and don’t face unexpected tax liabilities. Be prepared, stay organized, and consult a tax professional if you need additional guidance.

Nia Patrick

Hello! My name is Nia Patrick and I hold an MBA in Financial Management and a Bachelor of Business Administration. I teach you how to build and operate an online business.