House And Senate Propose Form 1099 Reporting Relief For Gig Workers And Those Who Use Payment Apps Like PayPal For Business
Republicans on the Senate Finance Committee have unveiled their version of the 'One Big Beautiful Bill Act' which tackle President Donald Trump's domestic agenda. While there are some significant differences between the Senate version and the version passed by the House earlier this year, both packages address unpopular reporting requirements: Forms 1099.
The House and Senate versions of the bill would both increase the reporting threshold for Forms 1099-K and 1099-NEC, which means that fewer taxpayers would receive those forms at tax time.
For years, taxpayers who provided certain goods or services worth more than $600 were required to issue Form 1099-MISC. That changed slightly in 2012 with the new Form 1099-K.
Form 1099-K introduced a requirement for reporting payment transactions, defined as transactions made with a payment card or through a third-party network. Payment card transactions include accepting a card—such as a gift card, credit card, or debit card—for goods or services. A third-party network transaction is one that is settled through a third-party payment network, such as PayPal. For the most part, think payment apps or online marketplaces.
While the reporting threshold for Form 1099-MISC had been $600, Form 1099-K required reporting when payments totaled more than $20,000 and more than 200 transactions were settled through a third-party network. No threshold applies to payment card transactions, which include credit, debit, or stored value cards, such as gift cards.
The gap between the "old" Form 1099-MISC reporting threshold of $600 and the Form 1099-K reporting threshold of $20,000 was a cause for concern for some who worried about a lack of reporting compliance. The fix from Congress in 2021 was a lower $600 threshold amount for Form 1099-K set to take effect in the 2022 tax year, meaning forms that would be distributed in early 2023. However, under pressure from business groups and an IRS that wasn't yet prepared to deal with the volume, 2022, 2023, 2024, and 2025 were treated as transitional years. Without any changes, for the 2025 tax year, the reporting threshold is $2,500.
Starting in 2020, there was another yet change to Form 1099-MISC. The IRS brought back Form 1099-NEC, Nonemployee Compensation, to report payments of nonemployee compensation (NEC) previously reported in box 7 on Form 1099-MISC. That means that independent contractors and gig workers now receive Form 1099-NEC, not Form 1099-MISC.
(Form 1099-MISC is still used to report attorney payments, royalties, prizes and awards, and some rents.)
The reason for the change in reporting threshold has been touted as increased compliance. According to the IRS, tax gap studies have consistently demonstrated that third-party income reporting significantly raises voluntary compliance with tax laws. For example, computerized document matching in the early 1980s—where the IRS matched data reported by third-party financial institutions to data reported by taxpayers—significantly reduced underreporting of dividend and interest income. And the 1987 requirement that taxpayers supply Social Security numbers for dependent children resulted in a marked difference in the numbers of dependents claimed on returns—seven million fewer dependent children were claimed than in the previous year.
For the 2025 tax year, the IRS requires third-party networks, such as payment apps and online marketplaces, to issue Form 1099-K if the aggregate payments received by a payee exceed $2,500, regardless of the number of transactions. That's a step towards the $600 threshold created under the American Rescue Plan Act of 2021—that's slated to take effect in 2026. It's still the case that no threshold applies to payment card transactions—payment cards include credit, debit, or stored value cards such as gift cards.
Also, for the 2025 tax year, the IRS requires those who pay independent contractors $600 or more to file Form 1099-NEC, Nonemployee Compensation, to report those payments.
(The $600 threshold has never been adjusted for inflation. However, if cost-of-living adjustments had been made each year since 1954—the year that section 6041 of the tax code was introduced—the $600 threshold would now be over $7,170.)
Both the House of Representatives and the Senate propose repealing the $600 reporting threshold for Form 1099-K introduced by the American Rescue Plan Act in 2021. That move would restore the previous threshold of $20,000 and 200 transactions for Form 1099-K reporting.
And, both the House of Representatives and the Senate propose increasing the $600 reporting threshold for independent contractors or certain other payments reported on Form 1099-NEC to $2,000, adjusted for inflation.
House Ways and Means Committee Chairman Jason Smith (MO-08) said, about the change, 'The current IRS subcontract labor reporting requirements are as out-of-date as they come. Increasing the threshold at which small businesses have to file a form with the IRS will be a potent regulatory relief for Main Street.'
The Coalition for 1099-K Fairness, an organization founded by eBay, Etsy, Mercari, OfferUp, Poshmark, Reverb and Tradesy in response to the changes in the American Rescue Plan Act of 2021, said about the change, 'The Coalition for 1099-K Fairness strongly supports the Senate Finance package's inclusion of language to raise the 1099-K reporting threshold. This commonsense provision would increase the threshold to over $20,000 in total payments and more than 200 transactions per calendar year—effectively stopping the implementation of a burdensome $600 threshold, regardless of transaction count, scheduled to take effect in 2026 under the American Rescue Plan Act (ARP).'
If the reporting rules change, that should mean fewer forms for taxpayers. In 2023, the IRS estimated there could be up to 44 million Forms 1099-K sent to taxpayers (the official IRS projections—released in September 2024—suggested that the numbers were much smaller because of the delayed implementation of the $600 reporting threshold).
The U.S. Bureau of Labor Statistics reports that the number of self-employed individuals is around 16.5 million, representing approximately 10.4% of the total workforce. That doesn't necessarily translate into 16.5 million Forms 1099-NEC since some self-employed workers don't receive any forms while others may receive multiple forms. But it's clear that changing the reporting threshold will impact millions of taxpayers.
Regardless of the reporting threshold, all taxable income, including income earned through payment apps and online marketplaces and income earned from side gigs and contracting jobs, must be reported on your tax return.
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