Online sellers are starting to receive 1099-K tax forms for their sales in 2022 and there seems to be a lot of confusion about the thresholds that determine whether marketplaces and payment processors are required to send those forms.
For some background - the 1099-K threshold for 2022 was originally dropped to $600 by the American Rescue Plan of 2021.
Despite massive pushback and lobbying on this issue, Congress failed to get changes to the threshold passed as part of the 2023 Omnibus Bill, however on December 23, 2022 the IRS announced it would delay implementation of the $600 threshold.
In the wake of that announcement, eBay and other marketplaces said that for tax year 2022, 1099-K forms would be issued according to the previous threshold which at the federal level is 200 transactions and $20,000.
So why are so many sellers now reporting they still received a 1099-K even though their sales were less than $20,000?
The most likely explanation is that the IRS announcement only applies to federal income tax reporting, but some states already had lower threshold requirements and those are still in effect if you live in those states.
Here are the states which currently have lower income tax reporting thresholds which will require payment processors to issue a 1099-K form if your sales don't meet the federal threshold:
- Arkansas - $2,500
- District of Columbia - $600
- Illinois - $1,000 and minimum of 4 transactions
- Massachusetts - $600
- Maryland - $600
- Mississippi - $600
- Missouri - $1,200
- New Jersey - $1,000
- Vermont - $600
- Virginia - $600
Note: Whether or not you receive a 1099-K form, you may still have income reporting obligations.
This article is not tax advice and you should absolutely consult a qualified tax professional about your specific business and personal tax situation.
So far most of the seller's I've seen who are concerned about this issue have been located in one of the above states and had sales above the state threshold, so it appears they correctly received a 1099-K per their state's requirements.
However, if you sell on eBay, Etsy, Amazon, Poshmark, Mercari, Facebook, or anywhere else and received a 1099-K below $20,000 while not being located in one of those states, I'd love to hear from you!
Leave a comment below or contact me.