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 11, 2026 – If you opened your mailbox (or inbox) this January and found Form 1099-K from PayPal, Venmo, Etsy, or another payment platform, you're not alone. Thousands of Connecticut side hustlers just discovered they're on the IRS's radar.

Here's what that form means, what you need to do about it, and how the rules are changing again starting next year.

What Is Form 1099-K and Why Did You Get One?

Form 1099-K reports payment card and third-party network transactions. If you received one for the 2025 tax year, it means your platform processed more than $2,500 in payments during the calendar year. That was the threshold that applied to 2025 activity.

The form shows gross payment volume: the total dollar amount processed through the platform. It does not reflect your actual profit after expenses, fees, refunds, or chargebacks. This is a critical distinction that confuses many filers.

Payment platforms like PayPal, Venmo, Etsy, eBay, and Stripe are required to issue 1099-K forms to users who exceed the threshold and send copies to the IRS. The IRS uses this data to cross-reference your tax return and verify that you're reporting all income.

Compare Your 1099-K to Your Records Immediately!

Before you do anything else, verify the accuracy of your 1099-K. Pull your platform's transaction history and compare it line by line with the form.

Check for these common discrepancies:

• Refunds or returns that weren't properly excluded
• Personal transactions incorrectly classified as business income
• Duplicate reporting across multiple platforms
• Incorrect totals due to processing errors

If you find errors, contact the payment platform immediately to request a corrected 1099-K. Do not file your tax return with incorrect information. The IRS will receive the same form, and mismatches can trigger audits or delays in processing your return.

The Golden Rule: Report All Income, With or Without a 1099-K!

Here's what catches New Haven side hustlers every year: You must report all business income on your tax return, regardless of whether you received a 1099-K.

The absence of a form does not eliminate your legal obligation to report income. If you earned $1,500 selling handmade goods on Etsy, that income belongs on Schedule C even if Etsy didn't send you a 1099-K.

Your personal bookkeeping records: not the 1099-K: are the primary source of truth for your business income. Bank statements, invoices, receipts, and platform reports all serve as documentation during an IRS examination.

Separate Personal Payments From Business Transactions

One of the biggest headaches with 1099-K forms is that platforms report aggregate activity without distinguishing between business and personal use.

Common scenarios that create confusion:

• Your roommate Venmos you $600 monthly for rent (personal, not taxable)
• You sell your old furniture on Facebook Marketplace (personal property sale, possibly not taxable)
• You receive PayPal payments for freelance graphic design work (business income, taxable)

All three types of transactions may appear on the same 1099-K if they flow through the same account. It's your responsibility to identify which payments represent taxable business income versus non-taxable personal reimbursements or transfers.

Maintain detailed records that categorize each transaction. Use separate accounts for business and personal activity whenever possible. Document the nature of every payment over $100 to defend your position if questioned.

Track Your Expenses to Reduce Taxable Income

The 1099-K reports gross payments only. It does not account for the cost of goods sold, business expenses, platform fees, shipping, or returns.

Deductible expenses for side hustlers include:

• Product costs and inventory purchases
• Shipping and packaging materials
• Platform fees and payment processing charges
• Marketing and advertising expenses
• Home office expenses (if you qualify)
• Mileage for business-related travel
• Professional services (accounting, legal, web design)

Without proper expense tracking, you'll pay taxes on revenue that was actually spent running your business. A New Haven Etsy seller who shows $10,000 on their 1099-K might have only $3,000 in actual profit after deducting $7,000 in legitimate business expenses.

Use accounting software, spreadsheets, or even a dedicated notebook to document every business expense throughout the year. Save receipts and invoices. Take photos of cash transactions. This documentation is essential during tax preparation and crucial if the IRS ever examines your return.

What Changes for Next Year's Filing (2026 Payment Activity)

Starting January 1, 2026, the 1099-K reporting threshold reverts to the previous standard: $20,000 in gross payments AND more than 200 transactions in a calendar year. You must exceed both thresholds to receive a 1099-K.

What this means in practice:

• Process $19,000 in 100 transactions → No 1099-K issued
• Process $12,500 in 250 transactions → No 1099-K issued
• Process $21,000 in 205 transactions → 1099-K issued

This change dramatically reduces the number of side hustlers who will receive 1099-K forms for their 2026 activity (reported when filing taxes in 2027). However, it does not change your obligation to report all income.

The absence of a 1099-K makes your personal recordkeeping even more critical. Without a form, the IRS has no independent documentation of your payment activity. Your ledger becomes the sole source of proof for income verification.

Special Considerations for New Haven Side Hustlers

Connecticut has its own tax reporting requirements that layer on top of federal obligations. All business income reported on your federal Schedule C must also be included on your Connecticut state tax return.

New Haven side hustlers operating in multiple municipalities should verify whether local business tax licenses or registrations are required. Some activities that seem casual: like regular craft fair sales or operating a small online store: may trigger local business tax obligations.

If your side hustle generated more than $1,000 in net profit (after expenses), you may owe self-employment tax on top of regular income tax. Self-employment tax covers Social Security and Medicare contributions: the equivalent of what an employer would withhold from a traditional paycheck.

Common Filing Mistakes to Avoid

Mistake 1: Reporting the 1099-K amount as your profit. Always subtract legitimate business expenses to determine your actual taxable income.

Mistake 2: Ignoring income below the reporting threshold. Report all business income regardless of whether you received a 1099-K.

Mistake 3: Mixing business and personal transactions in the same account. Separate accounts prevent classification headaches and provide cleaner records.

Mistake 4: Failing to make quarterly estimated tax payments. If you owe more than $1,000 in taxes on your side hustle income, you're generally required to make quarterly estimated payments throughout the year to avoid penalties.

Mistake 5: Waiting until April to organize your records. Tax preparation is significantly easier (and less expensive) when records are organized throughout the year.

Need Help Navigating 1099-K Reporting?

Filing taxes with side hustle income can be complicated, especially when dealing with 1099-K forms, expense deductions, and self-employment tax calculations. At Jose's Tax Service in New Haven, we specialize in helping Connecticut entrepreneurs and side hustlers maximize deductions while staying fully compliant with federal and state requirements.

Our team reviews your 1099-K forms, identifies all eligible deductions, and ensures accurate reporting on both your federal and Connecticut returns. We handle the complexity so you can focus on growing your business.

Contact us today to schedule a consultation and get your 2025 tax return filed correctly the first time. We offer competitive rates and personalized service tailored to New Haven's business community.

Action Steps Before You File

Complete these tasks before submitting your 2025 tax return:

1. Verify your 1099-K accuracy by comparing it to platform transaction records
2. Gather documentation for all business expenses throughout 2025
3. Separate personal payments from business income in your records
4. Calculate estimated quarterly tax payments for 2026 if you expect similar income
5. Consult with a tax professional if your situation involves multiple income streams or complex deductions

The 1099-K reporting requirements have created new compliance challenges for side hustlers, but proper recordkeeping and professional guidance ensure you report accurately without overpaying. Take action now to avoid last-minute stress as the April 15th deadline approaches.