IRS 1099-K Rule Changes: What Small Business Owners Need to Know in 2025

Finally, some breathing room for small business owners dealing with tax paperwork.

If you've been losing sleep over the constantly changing 1099-K rules, you're not alone. Small business owners across the country have been bracing for lower reporting thresholds that would have created a paperwork nightmare. But here's some good news that might help you rest easier: significant changes happened in July 2025 that actually make things simpler for most small businesses.

Let's break down exactly what changed, what it means for your business, and how you can stay compliant without the stress.

What Exactly Is Form 1099-K?

Before we dive into the changes, let's make sure we're all on the same page about what Form 1099-K actually does.

Form 1099-K reports the total amount of payments you received through third-party payment processors during the year.

We're talking about platforms like:

• PayPal
• Venmo for business
• Cash App for business
• Stripe
• Square
• Etsy (for sellers)
• eBay (for sellers)
• Amazon (for sellers)

Think of it as the IRS's way of tracking electronic payments to make sure business income gets properly reported. The form goes to both you and the IRS, creating a paper trail of your electronic transactions

Here's what's important to remember: Even if you don't receive a 1099-K, any income you earn through these platforms is still taxable and needs to be reported on your tax return. Even if you don't receive a 1099-K, any income you earn through these platforms is still taxable and needs to be reported on your tax return. 

The Big Change: What Happened in July 2025

On July 4th, 2025 President Biden signed the One Big Beautiful Bill Act into law, and it included some major changes to 1099-K reporting thresholds.

The new rule is actually the old rule: Payment processors must now issue 1099-K forms only when you meet BOTH of these conditions:

• $20,000 or more in total payments, AND

• More than 200 transactions

This is a huge relief for small businesses because it means far fewer people will receive these forms compared to what was originally planned.

How We Got Here: A Timeline of Confusion

The path to these current rules has been a roller coaster that left many business owners confused and stressed. Here's what actually happened:

Original Rules (through 2023): $20,000 + 200 transactions

2024: Threshold lowered to $5,000 (but kept the 200 transaction requirement)

2025 (what was planned): Threshold was supposed to drop to $2,500

2026 (what was planned): Threshold was supposed to drop all the way to $600

2025 (what actually happened after July 4th): Back to $20,000 + 200 transactions

The American Rescue Plan Act of 2021 had originally planned to eliminate the transaction requirement and drop the threshold to just $600. Can you imagine the paperwork chaos that would have created? Thankfully, those lower thresholds kept getting delayed, and now they've been reversed entirely for 1099-K forms.

What This Means for Your Small Business

Let's get practical about how this affects your day-to-day operations and tax planning.

You'll Likely Receive Fewer 1099-K Forms

Most small businesses will see a significant reduction in the number of 1099-K forms they receive. Unless you're processing more than $20,000 through a single platform AND have more than 200 transactions on that same platform, you won't get a form.

Each Platform Counts Separately

This is crucial to understand: the thresholds apply to each payment processor individually, not combined. So if you process $15,000 through PayPal and $15,000 through Square, you won't receive 1099-K forms from either platform (assuming you also stay under 200 transactions on each).

Your Tax Obligations Haven't Changed

Here's where some business owners get tripped up: just because you don't receive a 1099-K doesn't mean that income isn't taxable. Every dollar you earn through these platforms still needs to be reported on your tax return.

Other 1099 Forms Are Changing Too

The One Big Beautiful Bill Act didn't stop with 1099-K forms. Starting in 2026, these changes will also take effect:

Form 1099-NEC (for contractor payments): Threshold increases from $600 to $2,000

Form 1099-MISC (for miscellaneous payments): Threshold increases from $600 to $2,000

Both of these new thresholds will be adjusted for inflation each year, which should help prevent the need for frequent legislative updates.

What You Need to Do Right Now

Don't let these changes catch you off guard. Here's your action plan:

Review Your 2025 Payment History

Take a look at each payment platform you use and calculate:

• Your total payments received in 2025
• Your total number of transactions in 2025

If you're over both thresholds on any single platform, expect to receive a 1099-K by January 31st, 2026.

Strengthen Your Record-Keeping

Whether you receive 1099-K forms or not, you need detailed records of all business income. This means:

• Monthly statements from all payment processors
• Records of cash and check payments
• Documentation of any refunds or chargebacks
• Notes about personal vs. business transactions (especially important if you use platforms like Venmo for both)

Plan for Next Year

If you're close to the thresholds, you might want to consider:

• Spreading transactions across multiple platforms to stay under limits
• Timing large payments to manage when you cross thresholds
• Setting up separate business accounts to keep personal and business transactions clearly separated

Don't Ignore Income Just Because You Don't Get a Form

This is where a lot of small business owners make costly mistakes. The IRS still expects you to report all income, regardless of whether you receive tax forms. Keep detailed records and report everything accurately.

How Professional Bookkeeping Can Help

Managing these tax compliance requirements while running your business can feel overwhelming. You're already juggling customer service, marketing, operations, and a dozen other responsibilities. Adding complex tax rule changes to that list can push anyone to their breaking point.

This is exactly why many successful small business owners partner with professional bookkeepers. When you work with a team that stays on top of tax law changes, you can focus on growing your business instead of worrying about compliance issues.

A good bookkeeping partner will:

• Track all your income sources automatically
• Ensure proper categorization of business vs. personal expenses
• Maintain detailed records that satisfy IRS requirements
• Monitor threshold levels across all your payment platforms
• Prepare you for tax season with organized, accurate financial data

The Peace of Mind You Deserve

Running a small business is hard enough without losing sleep over constantly changing tax rules. The good news is that the 2025 changes to 1099-K reporting actually make things simpler for most small businesses.

But staying compliant still requires attention to detail and proper record-keeping. Whether you handle this yourself or work with a professional bookkeeper, the key is having a system that captures all your income accurately and keeps you prepared for whatever tax season brings.

Ready to stop worrying about tax compliance and start focusing on growing your business?



The right bookkeeping support can give you the confidence that comes from knowing your financial records are accurate, complete, and ready for anything the IRS might ask for. Because when your books are in order, you can spend your energy on what really matters: serving your customers and building the business you've always dreamed of.