Back to $20,000 and 200: The IRS Resets the Rules

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For small business owners, tax season used to be predictable. Then came a few years of shifting rules, new forms, and plenty of confusion about who gets a Form 1099-K.

Now, at last, the IRS has drawn a clear line again. In October 2025, the agency confirmed that most online sellers and small businesses will face the same reporting threshold they did for years before the pandemic. That update matters to anyone who gets paid through a platform or payment app and to the accountants who have to make sense of it all.

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The return of the old rule

After several rounds of transition relief, the IRS reinstated the traditional Form 1099-K threshold for third-party payment networks. You’ll now generally receive a form only if your business exceeds $20,ooo and more than 200 transactions for goods or services in a calendar year. The announcement appears in IRS News Release IR-2025-107 and Fact Sheet FS-2025-08, both published in October 2025.

That’s the federal standard. Some states still require lower thresholds, and individual platforms can issue a form even if you fall below it. So, a 1099-K in your mailbox isn’t necessarily a sign of trouble, it just means the platform chose to report.

Payment-card processors, by contrast, have no minimum threshold. Whether you run a café or sell one item through a card reader, those transactions are reported in full.

What the form really says

A 1099-K reports gross payments. It doesn’t subtract platform fees, refunds, shipping, or your cost of goods. Think of it as a summary of what moved through the processor, not what you actually earned.

The IRS fact sheet spells this out clearly: taxpayers should use their own records to compute net income. If a form looks off, say, it includes personal transfers or duplicate totals, then the IRS instructions explain how to ask the issuer for a correction and what to do if you can’t get one.

Income rules that haven’t changed

Receiving a 1099-K doesn’t create taxable income and not receiving one doesn’t erase it. What matters is how you earned the money.

The IRS says in both Publication 525 and its Gig Economy Tax Center that payments for goods or services are taxable even when no form is issued. Personal reimbursements and gifts are not.

In short, report what’s business, leave out what’s personal, and keep records that prove the difference. When it comes to taxes, the only thing worse than bad news is a surprise.

Keep your records cleaner than ever

Good bookkeeping is still the simplest insurance policy you can buy.

The IRS’s Publication 583 outlines how to keep records that support income and deductions. Use a dedicated business account. Save every processor statement, refund log, and expense receipt. Each month, reconcile the gross total on your statements with what you record in your books.

At year-end, your 1099-K should match that gross figure. From there, you can document fees, refunds, and cost of goods sold to reach the taxable number you’ll report.

For Schedule C filers, Publication 334 remains the practical guide to small-business income and expenses.

The digital shift inside the IRS

Behind the scenes, the IRS is becoming more digital. Starting this year, anyone filing ten or more information returns in total must file electronically. The Information Returns Intake System (IRIS) is the free way to do it with no software subscription required.

The 2025 General Instructions for Certain Information Returns explain the process and list new forms such as Form 1099-DA for digital asset transactions. More returns will be filed online, matched faster, and checked automatically. That’s good news if your books are right, and a problem if they aren’t.

Avoid these common traps

One common mistake is treating the 1099-K as the amount of taxable income. It’s not. The number on the form is gross; your tax return should reflect net business income after expenses.

Another is ignoring income because no form arrived. The IRS already has guidance making clear that income is taxable whether or not a 1099-K is issued.

A third mistake is mixing business and personal transactions in one account. It may seem efficient, but it creates messy records and can cause personal transfers to appear as business income.

Finally, don’t rely on old instruction tables. Some still show temporary thresholds used in 2024. The October 2025 guidance is the one that counts.

What to do before December 31

Take an hour or two this quarter to review your payment systems. List each processor or marketplace you use and note whether it falls under the card-processing rules or the third-party network threshold.

Then, reconcile your year-to-date totals to your books. If you expect to file any 1099 forms of your own, create an IRIS account now. It takes minutes and avoids last-minute e-file issues.

Finally, brief whoever manages your accounting. Make sure everyone understands that 1099-K forms report gross receipts, not taxable income, and that the current federal rule is $20,000 and 200 transactions for third-party networks.

Beneath it all

All of these requirements stem from Section 6050W of the Internal Revenue Code and its Treasury regulations. The October 2025 update didn’t create new law; it simply returned enforcement to the long-standing statute.

That’s good news for small business owners. The rule is familiar again, the systems are modern, and the path forward is clear. Keep your accounts separate, reconcile your numbers, and treat every IRS form as a starting point, not the final word.

Editor’s note (November 11, 2025): This article summarizes federal IRS guidance as of today. State rules can differ. Always verify details on IRS.gov or with your tax professional.

Sources

• IRS News Release IR-2025-107 (Oct 23 2025)

• IRS Fact Sheet FS-2025-08 (Oct 2025)

• Understanding Your Form 1099-K, IRS.gov (rev. Oct 2025)

• General Instructions for Certain Information Returns (2025)

• Publication 525 Taxable and Nontaxable Income

• Publication 583 Starting a Business and Keeping Records

• Publication 334 Tax Guide for Small Business

• Gig Economy Tax Center, IRS.gov

• Internal Revenue Code § 6050W and 26 CFR 1.6050W-1

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