You sold $650 of handmade earrings on Etsy and a $740 couch on Facebook Marketplace last year. Your friend in Texas sold nearly the same amount and got nothing in the mail. You both check your inboxes in January: your friend has no tax form, you have two 1099-Ks totaling $1,390 — even though the IRS told everyone the federal threshold is back to $20,000. Did the platforms make a mistake?
No. You live in a state that never went back.
In July 2025, Congress wiped out the planned federal drop to $600 and restored the old $20,000-and-200-transactions rule for 2025 and beyond. But a growing group of states — including Massachusetts, Vermont, Maryland, Virginia, and the District of Columbia — kept their own $600 rule. If a platform collected $600 from buyers on your behalf while you were a resident of one of those states, it generally has to file and send you a 1099-K regardless of what the IRS requires federally. The form in your mailbox is not an error; it is a state compliance document that happens to be copied to the IRS too.
That split creates exactly the confusion the IRS says is most dangerous: thinking "no federal form means no income" or "I got a state form so I owe tax on the whole amount." Neither is true. Here is how the federal and state systems now interact, which states still use $600, and how to keep books that survive both.
The Federal Reversal: Back to $20,000 and 200 Transactions
A five-year detour that ended with the One Big Beautiful Bill Act
Form 1099-K has existed since 2008 to report payments settled through a third-party settlement organization (TPS O) — payment apps like PayPal, Venmo, and Cash App, and marketplaces like Etsy, eBay, Uber, and Square. For more than a decade the federal trigger was simple: more than $20,000 in gross payments and more than 200 transactions in a calendar year.
The American Rescue Plan Act of 2021 tried to lower that to $600 with no transaction minimum, starting with tax year 2022. The IRS quickly realized millions of casual sellers would be swept in and created a phased transition — $5,000 for 2024, $2,500 planned for 2025, $600 planned for 2026 — while asking Congress for a cleaner fix.
That fix arrived as Section 70432 of the One Big Beautiful Bill Act (OBBBA), signed July 4, 2025. The law permanently reinstates the original threshold — more than $20,000 and more than 200 transactions — for third-party network transactions. On October 23, 2025, the IRS confirmed it in IR-2025-107 and updated its FAQs:
- For tax year 2025 (filed in early 2026) and all later years, a payment app or marketplace generally must issue a federal 1099-K only if both conditions are met.
- A separate rule still applies to direct payment-card transactions (a customer swiping a Visa at your store) — those can trigger a 1099-K with no minimum.
- Income remains taxable whether or not you receive a form. The threshold only controls paperwork, not taxability.
In short: if you crossed $20,000 and 200 sales on a single platform, expect a federal 1099-K. If you made $4,000 across 40 sales, most platforms will not send a federal form in 2026 — unless your state says otherwise.
What "both conditions" really means
Both tests must be met on the same platform, for the same payee in the calendar year:
- Gross payment volume — total dollars processed for goods or services before fees, refunds, or shipping are subtracted.
- Transaction count — number of reportable payments, not dollar amount.
Sell one item for $21,000? That is $21,000 but only one transaction, so generally no federal 1099-K from that marketplace. Process 250 payments totaling $19,800? Under $20,000, so no federal 1099-K. Cross both — $20,001 and 201 payments — and the form is required federally.
Platforms report the same gross amount to you and to the IRS, so mismatches are easy for automated matching to spot later.
The State Patchwork That Didn't Revert
Here is where the surprise lives. States can — and many do — set a lower threshold for state filing. A marketplace that meets the state threshold must file a 1099-K with that state's tax authority and furnish a copy to you, even when no federal filing was required. Because the copy also goes to the IRS through the Combined Federal/State Filing program, you will see it in your IRS records too.
As of the 2025 tax year, the lower states cluster into three tiers:
Tier 1: $600 flat — no transaction minimum
These states require a 1099-K if you processed $600 or more in gross goods-or-services payments in the year, regardless of how many transactions:
- District of Columbia — $600
- Maryland — $600
- Massachusetts — $600
- Vermont — $600
- Virginia — $600
- Montana — $600 (many platform guides include MT)
- Mississippi — $600 (listed by several large filers)
- North Carolina — $600 (added by recent guidance)
- California — $600 (applies to California residents; check FTB guidance annually)
If you live or are registered to receive payments in any of these states, a $650 sale on a single platform is enough to generate a form. That is why you got one and your Texas friend did not.
Tier 2: About $1,000
- New Jersey — $1,000
- Illinois — $1,000 and 4 or more transactions — you need both the dollars and the count.
- Missouri — $1,200 (included in several processor matrices)
Tier 3: $2,500
- Arkansas — $2,500
Every other state currently follows the federal $20,000-and-200 rule for state purposes as well.
The exact list shifts each filing season as departments of revenue update their conformity. Before year-end, check your own state's 1099-K instructions — the list above reflects processor publications from Stripe, PayPal, Etsy, Intuit, Whatnot, and Wave for the 2025 filing year, which still referenced the pre-OBBBA federal plan. Most have now added notes that the federal portion reverted while the state column stayed low.
How platforms decide which threshold applies to you
Payment apps and marketplaces generally use the address on file, your taxpayer identification number state, and the settlement account to determine residency. Move from Virginia to Texas in November? The platform may still treat you as a Virginia resident for the full year if you never updated your legal address and W-9. A few edge cases to know:
- Multiple shops on one platform — Etsy and similar sites aggregate gross across all your shops under one TIN before testing the threshold.
- Backup withholding — fail to provide a correct TIN and the payer must withhold 24% regardless of threshold.
- Payment cards vs. third-party networks — a card-present sale at your retail counter is reported under a different box and is not subject to the $20,000 test at all.
No Form Doesn't Mean No Income — and a Form Doesn't Mean the Whole Amount Is Taxable
This is the single biggest bookkeeping trap in the new split.
Myth: If I didn't get a 1099-K, I don't need to report it.
Fact: Federal law taxes all income from whatever source derived unless specifically excluded. The 1099-K is just an information return. Freelance delivery driving, tutoring paid through Venmo for goods and services, marketplace sales — all reportable on Schedule C (or the appropriate schedule) even under $600. The IRS said this explicitly in its "Never mind the myths" guidance.
Myth: The number on the 1099-K is my taxable profit.
Fact: The form shows gross payments, not profit, not net of fees, not net of refunds, and not adjusted for the original cost of the item. Many 1099-Ks are overstated for tax purposes:
- Platform fees, payment-processing fees (typically 2.9% + $0.30 plus marketplace commissions of 6–15%), shipping you collected and forwarded to a carrier, and sales tax the marketplace collected and remitted are all still inside the gross.
- Refunds and returns processed through the same platform are often not subtracted — the payer may issue a separate correction or leave it to you to adjust.
- A personal item sold at a loss is not taxable beyond any gain. Selling a used couch for $740 that you bought for $1,200 produces no taxable gain; the $740 is still on the form but the taxable amount is $0.
- Money from friends and family (Venmo "friends and family" personal payments) should not be on a 1099-K at all — if it is, keep the proof that it was misclassified.
If you treat the 1099-K total as revenue without adjustments, you will overpay. If you ignore income because no form arrived, you will under-report and risk an automated notice when the state copy is matched to your return.
What To Do When Your 1099-K Is Right, Wrong, or Unexpected
1. Reconcile every form before you file
For each 1099-K, build a one-page reconciliation:
- Start with gross on the form.
- Subtract platform fees and commissions, payment-processing fees, and any sales tax or shipping that was included.
- Subtract returns and refunds issued to buyers.
- Split personal vs. business. Tag each deposit: business sale, personal sale at gain or loss, reimbursement, or friend/family.
- Tie to bank deposits. The net after fees should match what actually hit your bank. If it doesn't, you have a missing deposit or an off-platform payment to find.
A spreadsheet or plain-text ledger with a separate row per payout is enough to answer an IRS or state matching letter later. The reconciliation itself is the evidence that the number on the return is correct.
2. Fix the common inclusion errors
- Personal sales at a loss: Report the gross on your return to match IRS records, then subtract the non-taxable portion so only any gain remains. For non-business filers, the IRS instructs reporting the full amount in Part I, Line 8z (Other Income) of Schedule 1 and an offsetting adjustment in Part II, Line 24z for the non-taxable part. For business filers, exclude personal sales from Schedule C entirely but keep documentation.
- Friends-and-family payments: Contact the payer for a corrected form if the amount is material. Keep screenshots showing the payment was tagged personal. If no correction arrives before filing, include the amount in total income to match the form and back it out with a documented adjustment — do not simply ignore the form.
- Refunds not netted: Keep the refund receipt and deduct it from gross in your books. If the payer will not correct the form, attach the documentation to your records; the form stays as issued but your taxable income reflects the true net.
- Multi-state confusion: If you moved states, keep proof of residency dates and update every W-9. A Virginia $600 filing for a seller who moved to Florida in February is correct for the invoicing period if the address on file was still Virginia — update it now to avoid the same issue next year.
3. Don't mix business and personal on the same handle
The fastest way to make every January miserable is to run business and personal payments through the same Venmo or PayPal account. Keep:
- One account/profile strictly for goods-and-services sales, with a business name and EIN if you have one.
- A separate personal account for splitting rent, repaying friends, and family gifts.
Platforms classify payments based on how the sender tagged them and how your account is set up. Separation makes your 1099-K almost entirely business, which is exactly what you want.
4. Track cost of goods and expenses all year, not just in April
A 1099-K never includes your costs, so you must supply them:
- For product sellers: Track cost of goods sold (what you paid for the item, including secondhand acquisition cost), marketplace fees, shipping, packaging, and mileage to the post office.
- For gig and service sellers: Track mileage or actual vehicle costs, phone, platform fees, and supplies. The standard mileage rate and actual-expense methods both require a contemporaneous log.
- For everyone: Keep fee invoices from each platform. Those fees are ordinary business expenses that offset the gross on the 1099-K.
Without those records, the IRS matching program sees only the gross and assumes it is all profit.
A Simple System Gig Workers and Sellers Can Run Themselves
You don't need an expensive stack to survive the patchwork. A monthly routine does most of the work:
Weekly (10 minutes): Download payout reports from each platform. Log each payout as one entry: date, platform, gross sales, fees withheld, shipping collected, net deposited. Tag it business or personal.
Monthly (20 minutes): Reconcile to bank statements. Confirm that net deposits × adjustments = gross per platform. File the platform fee invoice.
Quarterly: Add up gross per platform per state. If you are on track to cross $600 in a low-threshold state, set aside estimated tax on profit, not gross. Mark your calendar for state estimated-payment due dates if your state expects separate withholding or reporting.
In January: When 1099-Ks arrive, compare each form to your per-platform total. Investigate any difference over $25 before your preparer sees it. Keep the reconciliation PDF with that year's return forever — state audit windows for information-return mismatches often run 3–4 years, with some stretching to 6 for substantial understatements.
If you use plain-text accounting, this is a natural fit: one ledger file per tax year, one account per platform (Income:Etsy:Gross, Expenses:Etsy:Fees), and a monthly 1099K-check tag that sums to the form totals. The file is searchable, version-controlled, and produces the exact schedule your preparer needs.
Choose Your Strategy Before the Platforms Choose Your Paperwork
The $20,000 federal headline made many sellers relax. For residents of the $600 states, that relaxation is premature. The smarter move is to assume you will get a form if you sell in those states and build records accordingly.
Three practical choices to make now:
- Decide where to consolidate sales. If you sell casually — a few hundred dollars a year — batching everything onto one marketplace guarantees a state form in a $600 state. Spreading small sales across platforms never hides taxable income, but it can keep each individual payer under a state filing threshold, which reduces the number of matching documents floating around.
- Update residency information. Moved in 2025? File a new W-9 with each platform under your current address before year-end. A stale address is the most common reason a Texas resident still gets a Virginia-threshold form.
- Talk to your preparer in November, not April. Bring the per-platform gross table, fee totals, and your personal-vs-business split. A two-page summary in December avoids a frantic correction in March and leaves time for a payer to issue a corrected 1099-K if needed.
The patchwork is unlikely to disappear soon. Federal lawmakers restored the high threshold partly to reduce paperwork for casual sellers; state revenue departments kept the low threshold partly to capture that same information themselves. Until one side moves, you will live in both worlds if you sell where $600 is the rule.
Keep clean, contemporaneous books and neither world will surprise you.
Simplify Your Financial Management
Whether you received a 1099-K for $650 or cleared $20,000 across 300 transactions, maintaining clear, reconciled records is what turns a confusing form into a straightforward filing. A simple ledger that separates gross sales, platform fees, shipping, and personal payments makes every January's forms easy to explain. Beancount.io provides plain-text accounting that gives you complete transparency and control over your financial data — no black boxes, no vendor lock-in. Get started for free and see why developers and finance professionals are switching to plain-text accounting.