Got a 1099-K From PayPal, Venmo, or Etsy? What New Haven Side Hustlers Need to Know Before Filing in 2026

New Haven, CT – February 4, 2026 – If you sold goods on Etsy, accepted payments through Venmo, or received money via PayPal for side work in 2025, you may receive Form 1099-K this tax season. The IRS lowered the reporting threshold to $2,500 for tax year 2025, meaning thousands of New Haven side hustlers will receive these forms for the first time.

Understanding this form is critical! Misreporting income or failing to account for 1099-K transactions can lead to penalties, audits, and delays in processing your refund.

What Is Form 1099-K and Why Did You Receive It?

Form 1099-K reports payment card and third-party network transactions. Payment settlement entities, including PayPal, Venmo, Cash App, Stripe, and online marketplaces like Etsy, eBay, and Poshmark, must issue this form when your gross transactions exceed the reporting threshold.

For tax year 2025 (filing in 2026), that threshold is $2,500 in total payments. This represents a significant decrease from the $5,000 threshold that applied to tax year 2024.

Key point: The form reports gross payment amounts before deducting expenses, refunds, chargebacks, or fees. You will need to calculate your actual taxable income separately.

The $2,500 Threshold: What Transactions Count?

Third-Party Settlement Organizations (TPSOs) track all payments processed through their platforms. The $2,500 threshold includes:

• Payments received for goods sold online
• Fees earned for services provided (freelancing, consulting, tutoring)
• Rental income received through payment apps
• Business transactions processed via digital payment platforms

What does NOT count toward the threshold:

• Personal gifts from friends and family
• Reimbursements for shared expenses (splitting dinner, rent)
• Money sent using "friends and family" options (not for goods/services)
• Transfers between your own accounts

Platforms attempt to distinguish between personal and business transactions, but errors occur frequently. Review your transaction history carefully to identify misclassified payments.

You Must Report All Income, Even Without a 1099-K!

This is critical! The IRS requires you to report all taxable income regardless of whether you receive Form 1099-K. The reporting threshold determines whether platforms must send the form, it does NOT determine whether income is taxable.

Example: If you earned $1,800 selling handmade jewelry on Etsy in 2025, you will not receive a 1099-K. However, you must still report this income on your tax return.

Failing to report income can trigger IRS matching programs, notices, and potential audits. The agency receives copies of all 1099-K forms and cross-references them against tax returns filed.

Common Mistakes New Haven Side Hustlers Make With 1099-K Forms!

Mistake #1: Reporting Gross Income Without Deductions

Form 1099-K shows total payments received, not your actual profit. You can deduct legitimate business expenses to reduce your taxable income.

Allowable deductions include:

• Cost of goods sold (materials, inventory purchases)
• Shipping and packaging supplies
• Platform fees and payment processing charges
• Marketing and advertising costs
• Home office expenses (if applicable)
• Mileage for business-related travel

Document all expenses with receipts, invoices, and bank statements. Without proper documentation, the IRS may disallow deductions.

Mistake #2: Treating Personal Transfers as Business Income

If your 1099-K includes personal reimbursements or gifts, you must adjust the reported amount. Contact the payment platform immediately if significant personal transactions appear on your form.

Maintain separate accounts for business and personal use whenever possible. This simplifies record-keeping and reduces reporting errors.

Mistake #3: Ignoring State Tax Obligations

Connecticut requires residents to report all income earned through digital platforms. Side hustle income may also trigger estimated tax payment requirements if you owe more than $1,000 in state taxes.

Mistake #4: Waiting Until the Last Minute

Gathering transaction records, categorizing expenses, and reconciling 1099-K amounts takes time. Start organizing your records now to avoid last-minute stress and potential filing errors.

Steps You Must Take Before Filing Your 2026 Tax Return!

Step 1: Collect All 1099-K Forms

Payment platforms must issue Forms 1099-K by January 31, 2026. If you used multiple platforms, you may receive several forms.

Check your account dashboards if forms haven't arrived by mid-February. Contact the platform's support team to request missing forms.

Step 2: Download Complete Transaction Histories

Export detailed transaction reports from each platform covering the entire 2025 tax year. These reports provide the backup documentation you need to:

• Verify amounts reported on Form 1099-K
• Identify personal transactions incorrectly included
• Calculate cost of goods sold
• Support expense deductions

Step 3: Separate Business From Personal Transactions

Create a spreadsheet listing each transaction with these columns:

• Date
• Platform
• Description
• Amount
• Category (business income, personal transfer, refund)

This documentation supports adjustments you make to the gross amount reported on Form 1099-K.

Step 4: Calculate Your Actual Taxable Income

Use this formula:

Gross payments (from 1099-K) – Business expenses – Refunds/chargebacks – Personal transfers = Net taxable income

Maintain detailed records supporting each adjustment. The IRS may request documentation if your reported income differs significantly from Form 1099-K amounts.

Step 5: Determine Your Filing Requirements

Side hustle income generally qualifies as self-employment income, requiring you to:

• File Schedule C (Profit or Loss from Business)
• Pay self-employment tax on net profits exceeding $400
• Make estimated tax payments if applicable

New Haven taxpayers with side income should consult with a tax professional to ensure proper reporting and tax calculation. Self-employment taxes can increase your total tax liability by 15.3% of net profits.

How Jose's Tax Service Helps New Haven Side Hustlers Navigate 1099-K Issues!

Filing taxes with 1099-K income requires expertise in small business tax rules, expense documentation, and self-employment tax calculations. Jose's Tax Service provides personalized support for New Haven side hustlers facing these challenges.

We help you:

• Reconcile 1099-K amounts with actual business income
• Maximize legitimate business deductions
• Calculate self-employment tax obligations
• Determine estimated tax payment requirements
• Organize documentation to support your return

Our competitive rates make professional tax preparation accessible for side hustlers earning any income level. We take the time to understand your specific situation and ensure accurate reporting that minimizes your tax liability while keeping you compliant.

No upfront payment required. Your refund can cover our preparation fees, making professional help affordable when you need it most.

Visit Jose's Tax Service to schedule your appointment today.

Looking Ahead: The 2026 Tax Year Brings Major Changes!

The IRS announced significant changes to 1099-K reporting thresholds beginning with tax year 2026 (filing in 2027). The threshold will increase to $20,000 in gross payments AND more than 200 transactions.

This change will reduce the number of 1099-K forms issued dramatically. However, your obligation to report all income remains unchanged regardless of whether you receive the form.

What this means:

• Fewer casual sellers will receive 1099-K forms
• Reporting burden shifts more heavily to taxpayers
• Documentation becomes even more critical
• Professional tax preparation provides greater value

The threshold increase does not reduce your tax obligations, it only changes reporting requirements for payment platforms.

Don't Wait! Address Your 1099-K Questions Now!

Form 1099-K can complicate your tax return significantly, especially if you're filing with side hustle income for the first time. Mistakes in reporting this income can delay your refund, trigger IRS notices, and result in penalties.

New Haven taxpayers should take action now to:

• Gather all 1099-K forms and transaction records
• Separate business income from personal transfers
• Document all business expenses
• Calculate estimated tax obligations
• Consult with a tax professional if needed

Jose's Tax Service specializes in helping New Haven side hustlers, freelancers, and small business owners navigate complex tax situations. We provide the personalized attention and expertise you need to file accurately and maximize your refund.

Call today to schedule your appointment. Don't let 1099-K confusion cost you money or peace of mind this tax season.