In 2025, a big change is coming in the way freelancers, small business owners, and side hustlers report their earnings: the 1099-K threshold 2025. If you’re among the millions who are paid through sites like PayPal, Venmo, or even Etsy, you might be surprised to learn how this change might impact your taxes.
I must inform you about these changes before they take effect so that you are not left surprised at tax time. All you need to know about the IRS 1099-K threshold, how this will affect you, and what you need to do to be compliant is given below.
What is the 1099-K and Why Does the 2025 Threshold Matter?
The 1099-K is a tax return form that payment processors submit reporting to the Internal Revenue Service (IRS) the income you receive from transactions on their platforms. These entities may include PayPal, Venmo, and Stripe. The form assists the IRS in monitoring income that one can obtain through third-party payment systems.
Under the IRS 1099-K threshold, these sites will need to report you a 1099-K form if your year-to-date payments are greater than a particular figure. For most taxpayers, that figure has traditionally been $20,000 in gross payments and 200 transactions. However, in 2025, the IRS is lowering that to just $600 in gross payments, with no minimum number of transactions.
What Does This Mean for You?
If you are a freelancer, small businessperson, or somebody with a side hustle, this shift can literally change the way you report earnings. For the first time, even if you only get paid $600 overall (even if it’s a single payment), you’ll most likely receive a 1099-K form.
Example Scenario
You have a freelance graphic design company and are paid through Venmo and PayPal. In the year 2025, if your combined payments through all platforms total more than $600, you will be sent a 1099-K form by each platform, even if you received only one payment or hundreds.
For those who have come to depend on sites such as Venmo and PayPal for personal transactions, this shift is particularly significant. If you are making use of those sites as well for both personal and business transactions, it might be that the IRS is keeping an eye on those transactions and demanding more information as to the basis of that income. This is why proper Venmo tax reporting is now more important than ever under the 1099-K threshold 2025.
How the IRS 1099-K Threshold 2025 Will Impact Freelancers and Small Businesses
The new IRS 1099-K threshold will impact freelancers and small business owners dramatically. All of these employees have been well acquainted with the $20,000 threshold to keep their transactions away from actually being issued a 1099-K form in the past. But the small incomes generated from side gigs may be enough to now alert the IRS.
Freelancers and Side Hustlers Beware:
Freelance tax reporting will be more crucial than ever. Under the new regulations, independent contractors may be asked to report all their earnings made via third-party payment platforms such as Venmo, PayPal, or others. Although the form itself is not new, the new limits on reporting will catch many off guard, particularly part-time workers who have never filed a 1099-K before.
How to Prepare for the 1099-K Threshold 2025
- Set Apart Your Company and Personal Transactions
The first thing you need to do to make sure you’re in compliance with the 1099-K threshold 2025 is to keep your personal and business transactions separate. Having Venmo or PayPal for both personal and business expenses makes it hard to keep track of your income. Create a new business account and use it solely for transactions pertaining to your freelance business or small business. This will make bookkeeping easier and keep you from accidentally causing a 1099-K form to be issued on personal transactions.
2. Account for Your Income
Should you be employing payment sites such as PayPal or Venmo to make business payments, you are required to monitor all received funds with care. With the new Venmo tax reporting regulations, even a single $600 payment might lead to a 1099-K form being issued. Don’t assume the platform alone will report your income — record in detail what was earned, the source of the income, and the character of the transaction. This may save you hassle when tax time comes and ensure smooth freelance tax reporting.
3. Be Ready to File Taxes
The IRS 1099-K threshold will provide clarity on your overall earnings through third-party payment systems. What if you receive several forms from various platforms? Here’s the process of how to file 1099-K taxes in 2025:
- Step 1: Check each of your 1099-K forms. Ensure that the figures coincide with your records.
- Step 2: Report all income listed on your forms while filing your tax.
- Step 3: If you get a 1099-K from more than one platform, aggregate them and report the total on your return.
- Step 4: Subtract business expenses to decrease your taxable income. Typical freelancers’ and small business owners’ deductions are office supplies, software, travel, and advertising expenses.
The Role of Venmo Tax Reporting
Venmo tax reporting has become essential. Venmo, a Gotham favourite payment method for freelancers and small businesses, is now being asked to report transactions that come out on a 1099-K form when your earnings hit the $600 mark. This has been a cause of concern for individuals who might use Venmo for everyday transactions. But the IRS is gaining strict control over personal vs. business usage, and one should make sure to report only business income properly.
For instance, if you earn $500 for freelance work through Venmo and $100 from a friend for lunch, the $500 is business income and must be reported as business income. Venmo will report your business transactions exceeding $600 in total in a 1099-K of that income making Venmo tax reporting necessary to manage carefully.
How to File 1099-K Taxes
It is always stressful to file taxes with the 1099-K form. However, paying taxes need not necessarily be such a tough task. Below is a stepwise guideline how to file 1099-K taxes:
- Check the 1099-K Form
Make sure all figures are correct and match your business records. Check the gross income reported.
2. Report the Income on Your Tax Return
Report the income from the 1099-K form on your tax return, typically under Schedule C if you are a sole proprietor. Make sure to keep any business expenses that can be used to offset your income a vital part of freelance tax reporting.
3. Seek the Advice of a Tax Professional
Please consider retaining a tax professional with an understanding of the changes to the IRS 1099-K threshold if you have any queries or require help in understanding the new tax laws.
What If You Don’t Report Your 1099-K Income?
Not reporting income shown on your 1099-K can have serious consequences. The IRS could use penalties, and the worst-case choice is to choose an audit for failure to report income. One must ensure that all incomes are reported correctly and timely to avoid costly mistakes – especially now that the 1099-K threshold 2025 is so low.
Conclusion
The 1099-K threshold 2025 is a major change for side hustlers, small business owners, and freelancers. With the IRS reducing the threshold to reporting only $600, here’s how the change can impact you. From Venmo tax reporting to full-time freelancing and from everywhere in between, it would be a little cooling off if you worked with the new reporting requirements so that your returns are properly filed on time. With the right information, you can escape the $600 trap and remain compliant when tax time comes.