Heads up if you’re a freelancer or small business owner: The IRS may need something new from you

(CNN) — Heads up to anyone who is a freelancer, independent contractor, business owner, property renter or just a hobbyist who occasionally sells their creations: If you accept business-related income through a payment app or online marketplace like Venmo, CashApp, Airbnb and Etsy, come January you may start receiving 1099-K tax forms from the platforms where you do business.

You may get more of them than you’re used to receiving — especially if you’ve never received one from the platforms before. And you’ll be getting even more in 2025 and beyond.

Here’s why and what you need to know before you file your 2024 taxes next year.

A rule change (finally) takes effect, but only partially

A rule change that greatly increases the reporting responsibility of third-party payment platforms to issue 1099-Ks to users was supposed to go into effect in 2021. But the IRS postponed implementation for 2021 through 2023, and it has decided to only partially implement it for 2024 and 2025.

The original rule required a third-party platform to send you a 1099-K if you had more than 200 business transactions in a given year on the platform, and only if those transactions combined added up to more than $20,000. Translation: Not that many people were affected.

The rule change will affect far more people, however, because it both eliminates the number-of-transactions threshold and drastically lowers the dollar-limit threshold to more than $600 for all transactions combined. The IRS has estimated that change could result in “44 million Forms 1099-K (being) sent to many taxpayers who wouldn’t expect one.”

But not quite yet.

Last month, the IRS issued official notice that for calendar year 2024 the dollar-limit threshold would drop to $5,000 and further announced the 2025 threshold would be $2,500. Only in 2026 is the rule scheduled to take full effect at $600, five years later than originally scheduled.

Even at the $5,000 level, companies are expecting to issue 150% more 1099-K forms than has been typical, said Wendy Walker, a vice president of regulatory affairs at Sovos, a business compliance software provider that, among other things, helps companies with 1099 reporting.

“So if a client (was issuing) 10,000 forms at the (old) threshold, that client is reporting an estimated 25,000 forms at the $5,000 threshold,” Walker said.

Your 2024 taxes

For this year, if you had more than $5,000 in gross business transactions on a given app or platform, then you, the IRS and your state tax department should all receive a 1099-K reflecting that.

(If you live in states such as Maryland, Virginia, Massachusetts or Vermont, which already have a $600 reporting threshold, none of this may be new to you.)

And the IRS notes in its 1099-K guide that some companies may choose to send a 1099-K to users with business transactions below $5,000.

A business transaction is defined as payment over that platform for a good or service, including tips, as well as rent for property. It does not include personal payments you may receive from friends or family.

Some things won’t change — like your tax obligation and the chance for errors

Keep in mind, the rule change does not in any way alter your tax obligations. You’ve always been required to report all your taxable business transactions. It’s just that now there will be greater third-party reporting sent to tax authorities.

Familiarize yourself with how the platforms where you do business plan to handle their 1099-K reporting and what they may need from you to facilitate that. They may, like Venmo and Etsy, have a page dedicated to the issue.

If you end up getting a 1099-K in error — e.g., the form reflects money transactions that were personal — check this IRS document for some tips on how to correct the situation.

But, generally speaking, the IRS expects you to report information from all the 1099-Ks you receive on your 2024 return, and then adjust for any errors either on that return or via an amended return after you file your original by the filing deadline (which you should do to avoid penalties if you owe money).

“If (the 1099-K) is not business income, or it is for personal transfers of money between family and friends, or it is for the sale of personal items at a loss, it still has to be reported — aka, accounted for,” said David Mellem, a partner at Ashwaubenon Tax Professionals.

So, check the 1099-Ks that are sent to you to make sure they are accurate. If they are not, ask the issuer to send you a corrected 1099-K. Hopefully they can do so before your official filing deadline so you can include it on your return with the other 1099s you received.

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