IRS Eases 1099-K Rules with $20K Limit

The Internal Revenue Service issued updated frequently asked questions on Form 1099-K on Oct. 23, 2025, clarifying reporting requirements for third-party payment networks under the One, Big, Beautiful Bill. The legislation retroactively restored the pre-2021 threshold, mandating forms only when gross payments for goods or services exceed $20,000 and transactions surpass 200 annually. This reverses planned reductions to $600, easing compliance for small sellers and service providers nationwide, including those in Southern Maryland’s tourism and craft sectors.

Payment settlement entities, such as online marketplaces and apps like Venmo or PayPal, must file Form 1099-K to report transactions that could signal unreported income. The form captures gross amounts from credit, debit or stored-value cards without deductions for fees, refunds or original costs. Taxpayers use it alongside records to calculate taxable gains, reporting personal sales on Schedule D or business income on Schedule C. The IRS emphasized that all income remains taxable regardless of form issuance, with no de minimis exception for card payments but relief for lower-volume third-party networks.

The American Rescue Plan Act of 2021 had lowered the threshold to $600 starting in 2022, prompting concerns over paperwork for casual sellers. Transition notices in 2023 and 2024 delayed enforcement, raising it temporarily to $5,000 for 2024 and $2,500 for 2025. The OBBB, signed July 4, 2025, eliminated those changes effective retroactively, aligning with prior law to reduce administrative burdens while targeting larger operations. States may impose lower thresholds, potentially affecting Maryland filers below federal limits.

In Southern Maryland, where small businesses drive a $2.5 billion economy across Charles, Calvert and St. Mary’s counties, the update offers targeted relief. Local vendors at Waldorf’s St. Charles Farmers Market or Solomons Island craft fairs often sell handmade goods via apps, previously facing forms for modest holiday sales. Gig workers, including charter boat captains on the Patuxent River or rideshare drivers serving Naval Air Station Patuxent River, benefit from fewer filings for seasonal earnings under $20,000. The Southern Maryland Chamber of Commerce noted in August 2025 that such adjustments support 15,000 local entrepreneurs, many operating sole proprietorships with online sales comprising 20 percent of revenue.

Taxpayers receiving unexpected forms should contact the issuer for corrections, as errors often stem from misclassified personal transfers like roommate rent shares. For instance, a $1,000 reimbursement for shared concert tickets in La Plata requires no tax but demands offsetting entries on Schedule 1 if reported erroneously. Gains from personal items, such as reselling used furniture bought for $800 and sold for $1,200, appear on Form 8949, while losses like a $300 shortfall on a sold appliance go unreported as deductions. Crowdfunding donations may qualify as gifts, exempt from tax, though organizers must track intent.

Filers face deadlines of Feb. 28 for paper submissions and March 31 for electronic ones, with payee copies due by Jan. 31. Electronic filing is mandatory for 10 or more returns, via the IRS’s FIRE system. Backup withholding at 24 percent applies if taxpayer identification numbers mismatch, refundable upon return filing. Merchant acquiring entities report card transactions without thresholds, classifying businesses via four-digit Merchant Category Codes like 5462 for bakeries.

Maryland’s 4.2 million taxpayers, including Southern Maryland’s 500,000 residents, prepare amid rising e-commerce. The IRS processed 162 million individual returns in 2024, collecting $4.7 trillion, with information returns aiding 85 percent of audits. Local preparers in Leonardtown or Prince Frederick report increased queries on app-based income, up 30 percent since 2023 per state tax board data.

For expatriates or ITIN users, worldwide income rules apply unchanged. The IRS maintains prior FAQ versions on its site for reliance claims, shielding good-faith filers from penalties. Small entities like Southern Maryland’s 1,200 farms, averaging $45,000 in annual sales, gain from streamlined reporting, per U.S. Department of Agriculture’s 2022 census updated in 2025.

Threshold Comparison

This framework promotes compliance without overwhelming micro-operations, as seen in 2024’s 1.1 million excess forms avoided through delays. Taxpayers access tools via IRS.gov’s Interactive Tax Assistant, with free filing options for incomes under $79,000.