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The IRS Quietly Changed the Side Hustle Tax Rule - Here's What Still Applies

The threshold changed. Your obligation to report income didn't.

By Sarah Brooks , Edited by Andrea Basse

Updated April 20, 2026

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For the past few years, people who make extra money on the side have been preparing for a big shift in how the IRS tracks that income. Under a rule enacted by the American Rescue Plan Act of 2021, payment platforms like PayPal, Venmo, Cash App, and Etsy were eventually going to be required to send a Form 1099-K to anyone receiving more than $600 in a tax year, down from the longstanding threshold of $20,000 and 200 transactions. The IRS delayed the change multiple times, but many taxpayers were still planning for a form to arrive.

That change is now officially off the table.

The One Big Beautiful Bill Act, signed into law on July 4, 2025, reversed the $600 rule and permanently restored the original threshold: a payment platform is only required to issue a Form 1099-K if you receive more than $20,000 in gross payments and complete more than 200 transactions in a calendar year. This applies retroactively to 2022 and forward.

Here's what that means for you and what still matters even if you never receive a form.

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What the $20,000 threshold actually means

The 1099-K is a form that the payment platform sends to both you and the IRS, reporting what you received. At $20,000 and 200 transactions, most casual sellers will never trigger one. If you sold a handful of items on Facebook Marketplace, rented out a room a few times, or picked up occasional Uber rides on the weekends, you almost certainly fall below both thresholds.

But there are two things the restored threshold does not change. First, some states set their own 1099-K reporting floors — and many of them stayed at $600 regardless of what Congress did at the federal level. If you live in one of those states, your payment platform may still send you a form. Second, and more importantly, the reporting threshold has nothing to do with whether your income is taxable.

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No form doesn't mean no tax

The IRS has been clear on this point. Whether you receive a 1099-K or not, income from selling goods or services is taxable if it represents a profit. A platform not being required to report your transactions to the IRS doesn't change what you owe. Self-employment income of $400 or more in net earnings still requires you to file.

Taxable vs. non-taxable: What to know

The IRS draws a clear line between income and reimbursements or personal transfers. If your roommate pays you back $800 for their share of utilities through Venmo, that is not income. If your friend repays a dinner loan through Cash App, that is not income. If a family member sends you money as a gift, that is not income.

Income is payments you receive for goods or services. Selling handmade candles on Etsy, delivering for DoorDash, doing freelance graphic design, renting out a parking space — all of that represents income, whether or not you get a form. And if you regularly buy items to resell at a profit, even on platforms like eBay or Poshmark, that activity is generally treated as business income.

There is one additional nuance worth understanding. A 1099-K reports the total that flowed through the platform before any fees, refunds, or costs. That number is almost always higher than your actual profit. The form is a starting point, not a final answer.

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The most common 1099-K mistakes

If you received a 1099-K, here are the mistakes tax professionals see most often.

Not reporting the form at all

The IRS received a copy of your 1099-K at the same time you did. Ignoring the form creates a mismatch in IRS records that often triggers an automated notice.

Double-counting your income

If you already track your business income through accounting software or invoices, the gross amount on your 1099-K may already be included in what you plan to report. Adding the 1099-K figure on top creates a duplicate. Report your income once, accurately, and reconcile the 1099-K against your own records.

Treating gross payments as profit

The 1099-K shows what the platform processed, not what you earned. If you sold a used couch for $300 that you originally paid $600 for, you have no taxable gain. If you run an Etsy shop and spend $4,000 on materials and fees to generate $7,000 in sales, your taxable income is closer to $3,000 — not $7,000.

Missing legitimate deductions

Self-employed individuals can deduct ordinary and necessary business expenses. Many first-time 1099-K recipients don't know this applies to them.

Deductions that reduce what you actually owe

If your 1099-K reflects genuine self-employment activity. Each deduction has specific IRS rules you need to meet. These deductions are available to reduce your taxable income:

Materials, supplies, and inventory costs directly tied to what you sold
Platform fees charged by Etsy, eBay, Airbnb, or any other marketplace
Home office deduction if you use a dedicated space for your side business
Mileage driven for business purposes, at the current IRS rate (72.5 cents per mile for 2026)
Phone and internet costs, proportional to business use
Advertising, packaging, and shipping expenses
Self-employment tax deduction

Keep receipts. The IRS can audit returns up to three years back under normal circumstances, and documentation of business expenses is what protects you if it does.

What to do if you received a 1099-K

If you receive a 1099-K, start by determining how much of that total is actually taxable. Not everything reported on the form counts as income. Reimbursements, gifts, and sales of personal items at a loss, for instance, are generally excluded. It's also important to compare the form to your own records, since the amount shown reflects gross payments before fees, refunds, or other costs, which means it's often higher than what you actually earned.

From there, report the income on the appropriate part of your tax return and focus on calculating your true profit. If the activity qualifies as a business or side hustle, you can deduct eligible expenses to reduce what you owe. And if this is ongoing income, keep in mind that self-employment taxes and quarterly estimated payments may apply, even if you didn't expect them at first.

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Bottom line

The IRS reversing course on the $600 threshold is genuinely good news for low-volume sellers and casual side hustlers who would have faced new paperwork for modest activity. But the reversal only changes when platforms are required to send a form, not whether the income is taxable. If you're making cash on the side, that profit belongs on your return regardless of whether a 1099-K arrives.

The difference is that now you won't have a form showing up that makes you wonder what to do with it. Track your income, deduct your expenses, and report what you actually earned. The paperwork got simpler, but your obligation didn't.

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