Tax season is drawing to a close, but there are still millions of Americans who are yet to file their return.

If you are among them, there is no need to panic – but you should beware of a new tax trap lying in wait for you. 

Mark Steber, a certified public accountant and senior vice president and chief tax officer at Jackson Hewitt Tax Service, has worked in the industry for over 30 years. 

He said a big change for 2025, which has been ripe for misinformation, is reporting income from self-employment, side hustles, or simply selling old belongings online.

Americans working across many industries are increasingly receiving some or all of their income via apps like Venmo or PayPal, which they must report to the taxman. 

This includes hair stylists, tutors and dog walkers, as well as people who sell items online through Etsy, eBay and Amazon, or host an Airbnb.

But it may come as a surprise to many to learn that this also includes people who sold Taylor Swift tickets or seats for a football game, Steber told the Daily Mail. 

‘A lot of people think that if it’s a hobby, or it’s part time or it’s a side gig, then they don’t owe money on that. Totally wrong,’ he added. 

Mark Steber, a certified public accountant and senior vice president and chief tax officer at Jackson Hewitt Tax Service, has worked in the tax industry for over 30 years

This tax season, Americans need to use 1099-K forms to report third-party app payments totaling $5,000 or more to the IRS – a substantial drop from $20,000 last year. 

This means that many people will be receiving one of these forms for the first time this year. 

The forms come pre-populated with the amount of money you received, and you could get multiple forms as one is sent out for each payment platform used where payments total at least $5,000. 

However, many people may fail to realize they have been sent one of these forms to fill out, Steber explained, as it could be buried in a company blanket email or mistakenly end up in a junk folder.

This law change does not affect the amount of taxes owed to the IRS – just how that income is reported. 

Payments received from family or friends should not be reported on the form, including reimbursements for a meal, getting repaid by a roommate for rent or sharing the cost of a car ride. You only need to list payments for goods or services.

Online sellers, gig workers and freelancers owe taxes on their income regardless of whether they meet the reporting threshold to use 1099-K forms. 

But it can be difficult for people to keep track of every payment, especially across various apps and websites, which can lead to confusion and underpayment.   

Tax law is simply catching up on the best way to report this income from different electronic payment platforms. 

It is key to understand that the 1099-K is an information return, meaning the income reported on the form is provided to taxpayers and the IRS. 

‘Misreporting, or ignoring, these forms can cause matching issues and IRS notices or audits,’ warned Mark Gallegos, CPA and tax partner at Porte Brown. 

‘More people are freelancing or using platforms like Etsy, DoorDash, or Airbnb, but they’re often unaware of tax implications.’

Importantly, taxpayers are responsible for reporting all the income included on all 1099-Ks received. However, just because income from a payment is reported on the form does not mean it is taxable income. 

In fact, the form does not distinguish between how much, if any, of the income listed is taxable. 

It includes gross proceeds, and does not take into account expenses, costs or tax deductions. 

That is why good recordkeeping of any payments you receive throughout the year is crucial.  

Americans working across many different industries are increasingly receiving some or all of their income via apps like Venmo or PayPal, which they have to report to the taxman

‘More people are freelancing or using platforms like Etsy, DoorDash, or Airbnb, but they’re often unaware of tax implications,’ said Mark Gallegos, CPA and tax partner at Porte Brown

The real risk comes if the income reported on the 1099-K is not included on the taxpayer’s return, warned Gallegos.

‘In that case, the IRS may treat it as underreported income, triggering both taxes and penalties,’ he said.

Take a taxpayer who received a 1099-K showing $10,000 in payments for goods sold through an online platform such as Etsy, but did not report it on their tax return, for example.

If the IRS matches the 1099-K data and flags the missing income, the taxpayer could owe $2,200 in federal income and self-employment taxes (assuming a 22 percent marginal tax rate and 15.3 percent self-employment tax).

They would also owe a 20 percent accuracy-related penalty, totaling $440 and interest on the unpaid taxes until settled.

‘That’s at least $2,640 owed, not including potential state taxes or additional scrutiny in future years,’ said Gallegos.

For decades, it has been a two-prong test to determine whether you receive a 1099-K, Steber told the Daily Mail.

‘You would have to make $20,000 in payments, and make 200 transactions, in order to receive a reporting form from a platform such as Venmo.’

But with more and more people being paid that way, the IRS wanted to lower the threshold. And over the next three years, they are transitioning to lower the threshold even further to just $600.

There is also no longer a minimum number of transactions that you need to make, and Americans will receive a 1099-K for every platform where they reach the threshold.

This means you could feasibly receive one from Venmo, Apple Pay and PayPal, to name a few.

‘For the 2024 tax year, if you got more than $5,000 in payments from your business activity, or even selling Taylor Swift tickets, then you will get a 1099-K,’ said Steber.

‘Then for the 2025 tax year, the number is $2,500, and then it will be lowered to the full fledged $600 reporting threshold in the 2026 tax year.’

There is a lot of misunderstanding out there on that point, he said, as well as misleading information being posted on social media. 

‘The number one mistake I hear on this topic is, that if it’s part time or a side hustle then it’s not income. If you’ve earned $1, it’s taxable,’ Steber said. 

‘Whether it be your sofa, a car or a baseball card, if you’ve got a gain, then that is taxable income. That rule has been the same since 1913. 

‘What’s been missing is this independent reporting platform that’s been there for a long time too, but $20,000 was pretty high. Once it gets to $600 there will be a pretty large number of people who will receive a 1099-K.’

It is crucial that taxpayers do not ignore it because the IRS will also have a copy, he warned. 

‘It’ll be a short while before they say, “Hey, we saw this money from PayPal. Where is that on your tax return?” And then you’re in a compliance cleanup situation.’ 

This tax season, Americans need to use 1099-K forms to report third-party app payments totaling $5,000 to the IRS

‘A lot of people think that if it’s part time or it’s a side gig, then they don’t owe money on that. Totally wrong,’ said Steber

While third-party payment platforms may send you the form in the mail, they could also simply send it via email.

This is causing further issues, warned Steber. 

‘What we’ve seen this year with the $5,000 threshold is that a lot of companies are notifying you through your email that you can go pull down the form and it’s available for downloading, which is another area that is confusing taxpayers. 

‘Many of them think that if they don’t get a form, then they don’t have to report it.’ 

He warns that just because you don’t get a form, or you move home or you fail to download it, that does not make you exempt from the reporting requirement. 

‘And you can rest assured that due to the penalty levels imposed on the platforms by the IRS, they are sending that information to the IRS.’

There are stiff penalties for failing to comply, he explained, and typically these companies have tens of thousands of customers.

‘It’s on you to know that if you’re getting paid, you need to be looking for that form. And because you didn’t change your address correctly, or your significant other threw it away, or it went into your spam email folder, that doesn’t get you out of trouble.’