What Taxpayers Should Know About Big Changes to Form 1099-K Reporting

Rhea-AI Summary

H&R Block announces significant changes to Form 1099-K reporting requirements for tax year 2024. Payment platforms must now issue 1099-K forms to individuals receiving $5,000 or more in payments on any single platform, down from the previous threshold of $20,000 and 200 transactions. The IRS expects this change to impact approximately 20 million people over the next two years.

The new requirements particularly affect gig workers, freelancers, and casual sellers who must now track their income more carefully. While this means more complex tax filing, self-employed individuals can benefit from various business tax deductions, including expenses for materials, shipping, advertising, and platform fees.

H&R Block recommends creating separate business and personal profiles, maintaining detailed transaction records, tracking expenses, and considering professional tax assistance to ensure compliance and maximize deductions. The company offers support through Block Advisors' small business certified tax pros and their Resource Center.

Positive

• Expanded business tax deduction opportunities for self-employed individuals and gig workers
• Potential tax savings through S Corp filing strategy for expanding businesses
• Professional tax support services available through Block Advisors

Negative

• Lower 1099-K reporting threshold ($5,000) increases tax filing complexity
• Higher risk of IRS audits and notices for gig workers and small businesses
• Additional paperwork and record-keeping requirements for affected taxpayers

Insights

Tax Policy Expert

The IRS's dramatic lowering of the Form 1099-K reporting threshold to $5,000 represents a pivotal market opportunity for H&R Block (HRB). This regulatory change is poised to significantly expand H&R Block's addressable market, potentially driving substantial revenue growth in the coming tax seasons.

The timing is particularly strategic, as the gig economy continues to expand, with Gen Z increasingly participating in multiple income streams. This demographic trend, combined with the more complex reporting requirements, creates a perfect storm that could drive many first-time customers to seek professional tax preparation services.

From an investor perspective, several key factors make this development particularly noteworthy:

• Market Expansion: The IRS estimates this change will impact approximately 20 million people over two years, representing a massive new customer acquisition opportunity for H&R Block.
• Recurring Revenue Potential: As these new tax situations become more complex, many customers are likely to become repeat clients, enhancing H&R Block's stable revenue base.
• Competitive Advantage: H&R Block's established infrastructure, including both digital solutions and in-person services, positions it well to capture market share from both do-it-yourself filers and smaller tax preparation services.
• Technology Leverage: The company's Block Advisors platform and digital tools provide scalability to handle the increased volume while maintaining operational efficiency.

However, investors should monitor several risk factors:

• Potential margin pressure if significant investment in additional staffing or training is required
• Competition from other tax preparation services and software providers
• The possibility of future regulatory changes that could impact the company's business model

Block Advisors by H&R Block demystifies a change impacting millions of small businesses, freelancers, and gig economy side hustlers this tax season

KANSAS CITY, Mo., Jan. 22, 2025 (GLOBE NEWSWIRE) -- The millions of Americans with revenue-generating side hustles and casual sellers may be in for a big surprise this January—an unexpected tax form called the 1099-K. Payment platforms, apps and online marketplaces must issue a Form 1099-K to anyone who received $5,000 or more in payments on any single platform in 2024 to include with their tax return this tax season.

This is a substantial change from the prior threshold, in which 1099-Ks were only sent to individuals who received more than $20,000 and had more than 200 transactions on any platform. The IRS also announced that the reporting threshold will continue to decrease in subsequent years and anticipates it will impact roughly 20 million people over the next two years.

Implications for Side-Hustlers and Casual Sellers

What does this mean for taxpayers and the explosive growth of the side-hustle economy? Many Americans are supplementing their incomes to cover necessities and fund their dreams. Some resell highly coveted concert tickets or used designer merchandise. Others sell handmade goods on online marketplaces or drive for a rideshare company. The 1099-K change means these casual online sellers, gig workers, freelancers and small business owners whose online transactions met the new reporting threshold for the first time in 2024 could have a more complex tax filing experience.

Recent data from H&R Block’s Outlook on American Life report found that GenZ is the generation most likely to rely on multiple income streams from a patchwork of revenue-generating activities, and most often online. These individuals must now account for and report their income more diligently to ensure compliance with the IRS regulations.

Many people are surprised that as gig workers they actually own a small business in the eyes of the Internal Revenue Service. And small businesses have extra tax rules—and potentially more IRS audits and notices—making filing taxes complicated. Whether gig revenue is the primary source of income or a side hustle, these individuals have more requirements and responsibilities that may lead them to interact more with the IRS and state revenue offices.

“Although these changes could result in more paperwork at tax time, the bigger concern is about accuracy,” said Carl Breedlove, a leading expert at H&R Block’s The Tax Institute. “Block Advisors and H&R Block small business certified tax pros have the expertise to help cut through the confusion, ensure you file accurately, and get you every possible deduction so you can keep more of your hard-earned money.”

While these new tax requirements may seem daunting, taxpayers filing as self-employed or small business owners also have more opportunities to offset their tax burden. Tax deductions, such as expenses you incur during your gig or side hustle, can help lower your income and overall tax bill. Self-employed and gig workers can often take advantage of small business tax deductions that individuals can’t.

Recommendations to Minimize Tax Liability

• Create separate business and personal profiles: Using the same account for business and personal transactions, such as splitting rent or sending gifts, may make distinguishing business income and expenses difficult.
• Maintain detailed records: Keep thorough records of all transactions, including the amount received, the date, and the nature of the transaction. This includes sales receipts, invoices, and any relevant correspondence.
• Track expenses: Document any expenses related to your side hustle or casual selling activities. This includes costs for materials, shipping, advertising, and any platform fees, as these can often be deducted from your income when filing your taxes.
• Consider professional assistance: If managing these new requirements feels overwhelming, consider seeking help from a tax professional. They can provide personalized advice and ensure you meet all IRS requirements accurately.
• Utilize tax preparation software: For DIYers, utilize reliable tax preparation software that can help you track income and expenses, generate necessary forms, and ensure compliance with the new 1099K requirements.
• Plan for taxes: Set aside a portion of your income to cover potential tax liabilities. This proactive approach can prevent unexpected financial burdens when it comes time to file your tax return.

Individuals who receive a 1099-K for the first time this year should keep in mind that they may be able to deduct against their reported business income in several ways. Home office expenses, business meals and travel, advertising expenses, retirement contributions, and even the cost of tax prep can often be deducted. Furthermore, if their business activities continue to expand, they may want to consider forming an LLC and filing taxes as an S Corp. This tax strategy often saves small business owners hundreds or even thousands at tax time.

While tallying up potential business deductions, individuals should consider that reporting a loss for multiple years can also threaten their new self-employed business owner status. Walking the line between hobby and business can be tricky, but a primary indicator is seeking to make a profit. If your expenses outweigh your revenue, the IRS may eventually wonder if your activity is more of a hobby.

Entering the world of self-employment brings a new level of complexity to taxes. The Block Advisors Resource Center has articles to help navigate the ins and outs of 1099-Ks and self-employed tax deductions. For professional help, Block Advisors’ small business certified tax pros provide support tailored to unique situations. To learn more, visit www.blockadvisors.com.

Editor’s Note:
For additional assets, please visit the 1099-K Media Kit at https://www.hrblock.com/tax-center/media-kit/1099-k/

About H&R Block
H&R Block, Inc. (NYSE: HRB) provides help and inspires confidence in its clients and communities everywhere through global tax preparation services, financial products, and small-business solutions. The company blends digital innovation with human expertise and care as it helps people get the best outcome at tax time and also be better with money using its mobile banking app, Spruce. Through Block Advisors and Wave, the company helps small-business owners thrive with year-round bookkeeping, payroll, advisory, and payment processing solutions. For more information, visit H&R Block News.

Media Contacts
Media Relations:	Erika O’Shea, (816) 585-6058, erika.oshea@hrblock.com Media Desk: mediadesk@hrblock.com
Investor Relations:	Jordyn Eskijian, (816) 854-5674, jordyn.eskijian@hrblock.com

FAQ

What is the new 1099-K reporting threshold for 2024 tax year?

The new threshold is $5,000 in payments on any single platform, down from the previous requirement of $20,000 and 200 transactions.

How many people will be affected by the new 1099-K reporting changes?

The IRS anticipates approximately 20 million people will be impacted by these changes over the next two years.

What tax deductions are available for gig workers under the new 1099-K rules?

Gig workers can deduct business expenses including materials, shipping, advertising, platform fees, home office expenses, business meals, travel, and retirement contributions.

What happens if a business reports losses for multiple years under the new 1099-K requirements?

The IRS may question whether the activity is a legitimate business or merely a hobby if expenses consistently outweigh revenue over multiple years.

How can taxpayers prepare for the new 1099-K reporting requirements?

Taxpayers should create separate business and personal profiles, maintain detailed transaction records, track expenses, and consider professional tax assistance.