The 1099-K Reset: What the IRS Change Really Means

CPAs are feeling whiplash from the last two years of 1099-K headlines. After planning a phased drop to $5,000 for 2024 and $2,500 for 2025, the federal standard has been reset by law: on July 4, 2025, Congress enacted the One Big Beautiful Bill Act (OBBBA), which restores the $20,000 and 200-transaction threshold for Form 1099-K reporting. That change supersedes the IRS’s prior phase-in plan and returns the familiar pre-ARPA baseline.

Form 1099-K is the year-end statement that payment platforms (like PayPal, Venmo business profiles, Stripe, Etsy, eBay, and ticket sites) send when you’re paid for goods or services through their networks. It reports gross payment volume, before fees, refunds, or chargebacks, and the IRS also gets a copy. That’s why mismatches happen: the form rarely equals your taxable income unless you reconcile it to your bookkeeping. Even with the reset, the basics didn’t change: you must report income whether or not a form arrives; platforms may still issue a 1099-K below the federal threshold; and several states use stricter thresholds. This piece digs into what changed, what didn’t, and how CPAs and owners can stay notice-proof in 2025.

What changed, and why it matters

Congress passed the One Big Beautiful Bill Act (H.R. 1) in July 2025. Section 70432 repeals the ARPA revision and reinstates the de minimis rule, so a third-party settlement organization must report only if payments exceed $20,000 and more than 200 transactions, effective as if included in ARPA. Related backup-withholding conforming rules apply beginning with calendar years after Dec. 31, 2024. Think of it as a return to the pre-ARPA baseline most owners and CPAs already know.

Context: Before OBBBA, the IRS had announced transition relief ($5,000 for 2024) and indicated a phased plan including $2,500 for 2025. That guidance is now overtaken by statute for 2025 and after.

What didn’t change (and still trips people up)

• Income is still taxable even without a form. If you’re paid for goods or services, that income belongs on your return, 1099-K or not.
  
  
• The 1099-K shows gross payments. It’s before fees, refunds, chargebacks, and shipping. Your books need to reconcile the platform total to your real taxable income.

• Platforms can still send a 1099-K below the federal threshold. Some do this for customer communications or operational reasons. Getting a form doesn’t automatically make everything on it taxable; it’s a starting point for reconciliation. 

The state wrinkle (don’t skip this)

Federal rules aren’t the whole story. Some states use lower thresholds and can require a 1099-K even when the IRS doesn’t. Example: Massachusetts requires reporting at $600, regardless of transaction count, for payees with an MA address. If you sell into a low-threshold state (directly or via a marketplace), plan for those January forms. Mass.gov

Quick FAQ (client-friendly answers you can reuse)

1. “Will I still get surprise forms?”
   Maybe. The federal threshold is higher again, but platforms may still issue forms below it, and state rules can be stricter. The fix is clean bookkeeping and saving platform statements.
2. “What if my 1099-K looks ‘too high’?”
   It probably does, it’s gross, not net. Tie it out: start with the 1099-K total, then subtract fees, refunds, and non-business payments, and document everything. (Screenshots and monthly statements help.)
3. “I got a CP2000 notice. Am I in trouble?”
   A CP2000 is not a bill. It’s the IRS asking you to reconcile a mismatch between forms they received (like a 1099-K) and your return. You respond with your tie-outs and support; if your figures are right, you can often resolve it by mail.

How to keep clients “notice-proof”

Map the platforms early. At year-end, list every payment channel a client uses—PayPal, Venmo business profile, Stripe, Etsy, eBay, ticketing sites, etc. Ask for year-to-date statements now rather than waiting for January.

Separate business from personal, at the source. Use a dedicated business profile/account wherever possible. Commingling is a common cause of head-scratching 1099-Ks. (The IRS guidance is clear: income from goods/services is reportable even if no form arrives.) 

Build a one-page “platform trail.” For each platform, keep a running worksheet: gross (per platform/1099-K) - less fees -  less refunds/chargebacks - non-business or personal transfers - taxable receipts. Save PDFs or screenshots to back each line. This becomes your answer key if a CP2000 shows up.

Prep a short client explainer. Set expectations now: “The federal threshold is back to $20k/200. You might still get a 1099-K below that, and some states use lower limits. Send us every form you receive, our job is to reconcile it to your books.”

Have a CP2000 response kit ready. Create a template cover letter, a platform tie-out schedule, and a checklist of attachments (platform statements, refund reports, fee schedules). The IRS explicitly says a CP2000 isn’t a bill; treat it like a documentation exercise with a deadline.

A quick example (use this in client calls)

Case: An Etsy seller processes $12,800 across 160 transactions. Etsy issues no federal 1099-K (under $20k and 200). But Shopify side sales push her Massachusetts receipts over $600, so a state 1099-K could still arrive. Her books show $12,800 gross, $1,024 in fees, and $600 in refunds, for $11,176 net receipts before COGS/expenses.

Takeaway: Whether a form arrives or not, you report the real income—and keep the statements to prove how you got there.

Why this is actually good news

The threshold reset reduces noise: fewer federal forms for casual sellers and fewer mismatches for CPAs to untangle. But the fundamentals (report all income; reconcile gross to net; watch state rules) remain the same. Standardize the playbook above, and most 1099-K headaches become five-minute tie-outs instead of mid-season fire drills. If a notice arrives, you’ll already have exactly what the IRS is asking for.

Conclusion

For small businesses and side-hustle sellers, OBBBA’s 1099-K fix restores a standard most people understand. But it doesn’t change the fundamentals: income from goods and services is taxable, platforms may still send forms below the federal threshold, and state rules can be stricter. The certainty play is simple — tight bookkeeping, platform-level tie-outs, and proactive client education — so the 2025 filing season is about real performance, not paperwork drama.

Sources

Congress.gov
Brownstein
IRS
IRS
Mass.gov

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