What is the New $600 Rule?

The IRS has updated reporting requirements for third-party payment platforms and brought more transactions under tax scrutiny. If payments were received through PayPal, Venmo, Stripe, or similar service providers, how such an update impacts the tax filings should be acknowledged.

What Changed?

• Previous Rule: In 2024, platforms were required to issue Form 1099-K only if total payments exceeded $5,000. This amount was reduced to $2,500 for 2025.
• New Rule: It is planned for 2026 that the threshold would drop to $600. It signifies even small business owners, freelancers, and casual sellers will likely receive a 1099-K form.
• Who It Affects: Independent contractors and gig workers as well as individuals selling goods or services online.

What Does a 1099-K Mean for Taxes?

Once a 1099-K is received, it does not automatically mean taxes are owed. The form simply reports the total amount received. Yet, the tax liability depends on deductions.

How to Offset Income from a 1099-K

Business-related deductions should be correctly recorded in order to optimize the amount of taxable income. The IRS allows expenses that are ordinary and necessary for business operations as presented below:

• Office Supplies: Pens, paper, printers as well as computers.
• Software & Subscriptions: Accounting tools and website hosting alongside industry-specific applications.
• Internet & Phone: The business-use portion of monthly bills.
• Mileage & Travel Costs: If a personal vehicle is leveraged for business purposes.
• Advertising & Marketing: Website fees and social media ads alongside promotional materials.

How to Reduce Taxable Income on a 1099-K

The most effective way to lower the tax burden is by locating all applicable 1099-K tax deductions. Business expenses and self-employment contributions, along with smart taxation strategies can present assistance in offsetting income.

Final Thoughts

The new $600 rule means more taxpayers will receive Form 1099-K—but it does not mean all reported income is taxable. It is possible to manage taxation by understanding what expenses can be written off on a 1099-K.

If help is needed with self-employment tax deductions for 2025 or filing a 1099-K, Watter CPA provides expert guidance. Contact us today.