New IRS Rule for Online Sellers and Freelancers: What You Need to Know

If you are an online seller or a freelancer who uses platforms like PayPal, Venmo, Amazon, or Square, you might be surprised by a new IRS rule that could affect your taxes. Starting this year, these third-party payment networks are required to issue Form 1099-K to users who receive more than $600 in gross sales from goods and services transactions in a single year.

This is a significant change from the previous threshold of $20,000, which means that more people will have to report their online income to the IRS.

Why does this matter? Well, if you sell a few items on Amazon or eBay, or do some occasional freelance work, you might think that it’s not a big deal. You might treat it as a hobby or a side hustle, and not as a business. However, the IRS does not see it that way. If you receive a Form 1099-K, you are considered a self-employed individual, and you have to file Schedule C and Schedule SE with your tax return.

This means that you have to report your income and expenses, pay self-employment tax, and possibly pay estimated taxes throughout the year.

 

 

This new rule could affect millions of online sellers and freelancers who might not be aware of their tax obligations. It could also increase the chances of an IRS audit, especially if there are discrepancies between the Form 1099-K and the tax return. Therefore, it is important to keep track of your online income and expenses, and consult a tax professional if you have any questions or concerns.

The IRS announced Nov. 24 that it is putting its plan on hold until next year. This means that the $600 threshold will not apply currently and the old $20,000 threshold will remain in effect. However, this could change again in the future, so it is still advisable to be prepared and informed about your online income and taxes.

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