Heads-Up for Tax Preparers: OBBB Restores Higher 1099-K Threshold—Here’s What Your Clients Need to Know

 

As we approach the 2025 tax season, taxpayers who use Third-Party Settlement Organizations (TPSOs)—such as PayPal, Venmo, and Cash App—and online marketplaces like eBay and Etsy, should understand how the One, Big, Beautiful Bill (OBBB) affects Form 1099-K reporting.

Changes to Reporting Thresholds

Under the OBBB (Public Law 119-21, signed July 4 2025), the reporting threshold for Form 1099-K has been restored to the pre-ARPA standard.

This change reverses the $600 threshold introduced by the American Rescue Plan Act of 2021 (ARPA). The IRS has confirmed that the $600 rule will not take effect. Beginning with tax year 2025 (returns filed in 2026), TPSOs are required to issue Form 1099-K only if both of the following conditions are met:

  • Gross payments exceed $20,000, and
  • The number of transactions exceeds 200.

A common client misconception is that income doesn’t need to be reported unless a form is received. Tax preparers should remind clients that all income from business, freelancing, or selling goods/services must be reported—regardless of whether a Form 1099-K is issued.

It’s important to also remind clients that:

  • The form reports total payments, not net income.
  • Receiving a 1099-K does not mean all money is taxable—clients may deduct legitimate business expenses to calculate net income.

To help clients stay compliant and avoid surprises:

  1. Educate clients early—especially gig workers, freelancers, and online sellers.
  2. Review TPSO activity—ask clients about payment-app and online-sales income.
  3. Encourage independent tracking—clients should keep good records even if they don’t expect a Form 1099-K.
  4. Clarify deductions—ensure clients understand what expenses can reduce taxable income.

The IRS continues to refine digital-payment reporting rules, but with the passage of OBBB, taxpayers and preparers can rely on the restored $20,000 / 200-transaction threshold. The obligation to report income, however, has always existed—and accurate record keeping remains the best protection against surprises.

Sources

IRS Newsroom, “IRS issues FAQs on Form 1099-K threshold under the One Big Beautiful Bill Act,” July 2025. https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions

Public Law 119-21 (OBBBA), enacted July 4 2025, Sec. 70432 — amending IRC § 6050W to restore the $20,000 / 200-transaction threshold. https://www.congress.gov/bill/119th-congress/house-bill/1/text

IRS Business Guidance, “Reporting payments to independent contractors – updates following the One Big Beautiful Bill Act,” August 2025. https://www.irs.gov/businesses/small-businesses-self-employed/reporting-payments-to-independent-contractors

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