One Big Beautiful Bill Act Changes Form 1099 Reporting For Gig Workers And Those Who Use Payment Apps Like PayPal For Business

Forbes

3 days ago

Gig workers will see a change in reporting. getty
The One Big Beautiful Bill Act (OBBBA) was signed into law by President Donald Trump on Thursday, July 4, 2025. The new law makes permanent several of the expiring tax cuts contained in Trump's signature 2017 tax legislation—the Tax Cuts and Jobs Act (TCJA). It also changes those controversial reporting requirements for gig workers and those who use payment apps like PayPal for business. That includes the reporting thresholds for Form 1099-K (for payment card and third-party network transactions), Form 1099-MISC (for payments not covered by other 1099 forms), and Form 1099-NEC (for nonemployee compensation)—those have been changed.
Under OBBBA, there are changes to the reporting thresholds for Form 1099-K (for payment card and third-party network transactions), Form 1099-MISC (for payments not covered by other 1099 forms), and Form 1099-NEC (for nonemployee compensation).
Form 1099-K is used to report payments received for goods or services that are processed through payment apps (like PayPal and Zelle), online marketplaces (like eBay), and, of course, credit cards. The old reporting threshold for Form 1099-K (you can read more about that below) is now new again. OBBBA reinstates the $20,000 and 200 transactions thresholds, retroactive to 2022 (or as if the reporting changes American Rescue Plan Act of 2021 had never happened). That means that the $20,000 and 200 transactions thresholds will apply to the tax year 2025.
Form 1099-MISC is used to report non-wage income like attorney payments, royalties, prizes and awards, and some rents. The reporting threshold for Form 1099-MISC will increase from $600 to $2,000, effective as of the 2026 tax year (the forms you'll receive in 2027). For tax years beginning in 2027 and after, the threshold will be adjusted for inflation.
Form 1099-NEC is used to report non-employee income—those for independent contractors and gig workers. The reporting threshold for Form 1099-NEC will increase from $600 to $2,000, effective as of the 2026 tax year (the forms you'll receive in 2027). For tax years beginning in 2027 and after, the threshold will be adjusted for inflation. What Taxpayers Need To Know About Form 1099
The changes under OBBBA should mean fewer forms for taxpayers. In 2023, the IRS estimated that up to 44 million Forms 1099-K would be sent to taxpayers. (The official IRS projections, released in September 2024, suggested that the numbers were much smaller due to 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. Background
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.
For the 2025 tax year, the IRS had signaled that third-party networks, such as payment apps and online marketplaces, would issue Form 1099-K if the aggregate payments received by a payee exceeded $2,500, regardless of the number of transactions. That was a step towards the $600 threshold created under the American Rescue Plan Act of 2021 and was slated to take effect in 2026.
(No threshold applies to payment card transactions—payment cards encompass credit, debit, or stored value cards, such as gift cards.)
Starting in 2020, there was another 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 reporting thresholds for both forms had been $600.
(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.) Why Were The Form 1099-K Requirements Changed In The First Place?
The change in reporting threshold for the Form 1099-K originally was 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. Forbes IRS Issues Guidance On New Deductions For Seniors, Tips, Overtime And Car Interest By Kelly Phillips Erb Forbes Questions About The New Tax Bill? Taxgirl Has Answers By Kelly Phillips Erb Forbes What The One Big Beautiful Bill Act Will Mean For You And Your Business By Kelly Phillips Erb