Don’t Get Caught Off Guard: 1099-K Updates You Need to Know for 2024 and 2025
As we welcome the new year, it’s essential to stay informed about changes in tax reporting that could affect your childcare business. One of the most significant updates to be aware of is related to the IRS Form 1099-K. If your business accepts payments via apps like Venmo, PayPal, or other similar platforms, understanding the new rules can save you from unnecessary stress—and potential penalties—come tax time.
What Are the Tax Implications of App Payments?
The basic rule hasn’t changed: payments received through apps are still considered taxable income and must be reported as part of your business revenue when filing taxes. This means that all the payments you receive through these platforms, whether for childcare services, late fees, or registration fees, should be included with your total income. What has changed, however, are the reporting thresholds for Form 1099-K.
Starting in 2024, more businesses will receive a 1099-K form from their payment apps because of the updated IRS reporting thresholds. While these changes won't increase the amount of taxes you owe, receiving a 1099-K means the payment app is directly reporting your income to the IRS. That means it's essential for you to correctly account for that income when preparing your tax returns.
What is the 1099-K?
The 1099-K form is used to report payments you receive for goods and services processed through third-party payment networks. This form is not something you generate yourself. Instead, it’s sent to you by the payment platform(s) if your payments meet the IRS’s reporting thresholds for the year. It's then your responsibility to include the reported income from the 1099-K in your business taxes, ensuring it’s properly accounted for on your returns.
What’s Changing?
The IRS has significantly lowered the reporting thresholds for the 1099-K form. Here’s what you need to know about the changes:
Old Rule (Before 2024): Previously, you only had to receive a 1099-K if your payments exceeded $20,000 and you had 200 transactions in a calendar year.
New Rules:
2024: Payments over $5,000 will be reported.
2025: The threshold drops to $2,500.
2026 and Beyond: Payments over $600 will be reported.
Who’s Affected?
If your childcare business uses payment apps to accept payments for services, late fees, or registration fees, these new rules likely apply to you.
Examples of Common Payment Systems Affected:
Venmo
PayPal
Cash App
Stripe
Square
Zelle (for business purposes)
These platforms are now required to issue a 1099-K form if your payments exceed the new thresholds. Be sure to watch for these forms, as they will provide critical income information for your tax filings.
How Will the 1099-K Affect Your Tax Filing?
If you use a tax preparer, you will need to include the 1099-K forms with all of the other revenue records you provide. Your preparer will use this information to complete your business tax filings.
If you prepare your taxes yourself, the amount reported on the 1099-K should be included on line 1 of either your Schedule C (for sole proprietors) or Form 1120-S (for S-Corporations).
Final Thoughts
With the new reporting thresholds coming into effect in the next few years, childcare providers who use apps to receive payments need to be prepared. These changes may mean receiving a 1099-K form for the first time, and ensuring that your income is accurately reported on your taxes will help you avoid any issues with the IRS. Make sure you understand these new rules and stay on top of your business finances, especially as the thresholds continue to drop in the coming years. If you’re unsure how these updates will affect your business, consider consulting with a tax professional to ensure you stay compliant and prepared for tax season.
