IRS Reporting Threshold for Side Hustles Jumps Back to $10,000 Starting 2025

The aptly named Red Tape Reduction Act of 2025 is all about changing the rules for when third-party payment apps—think PayPal, Venmo, or Square—have to tell the IRS about your income. Specifically, it rolls back a recent change and significantly raises the reporting threshold for transactions settled after December 31, 2024. Under this bill, these platforms only have to issue a Form 1099-K (the tax form that reports payments received) if you hit two conditions: you had more than $10,000 in total payments or you processed more than 50 separate transactions in a calendar year (SEC. 2).

The Return of the $10K Rule

This change is a big deal for anyone with a side hustle, whether you’re selling vintage clothes online, flipping furniture, or doing freelance gigs. For the past couple of years, the threshold had dropped significantly, meaning many people received 1099-K forms for income as low as $600. The Red Tape Reduction Act essentially says, 'Never mind,' and restores the much higher $10,000 threshold that was in place before the American Rescue Plan Act changed it. For the everyday person, this means far fewer surprise tax forms showing up in the mail come January, easing the administrative burden for casual sellers and small-scale entrepreneurs.

Real-World Impact: Less Paperwork, Less Visibility

Consider a graphic designer who earns $9,500 a year doing small projects for clients through an online platform. Under the previous, lower threshold, that platform would definitely issue a 1099-K, making that income stream immediately visible to the IRS. Under this new rule, since the designer is below the $10,000 limit, the platform is no longer required to report it. While this is great news for reducing paperwork and compliance costs for the payment processors and the sellers themselves—a clear benefit of "red tape reduction"—it also means the IRS loses visibility into a massive amount of potentially taxable income that falls between $600 and $10,000. This shift in transparency could lead to significant underreporting of income by individuals who might not realize they still owe taxes on that money, even if they don't receive the tax form.

The Backup Withholding Catch

Section 3 of the bill deals with backup withholding, which is when a payment processor is required to hold back a percentage of your payment and send it directly to the IRS because you haven't provided a valid taxpayer ID. This section clarifies that the $10,000/50 transaction rule also applies to determining when backup withholding is triggered for network payments. However, there’s a crucial catch: If you were subject to backup withholding last year because you crossed those reporting thresholds, you remain subject to it this year, even if your current year transactions fall below the $10,000/50 limits (SEC. 3).

Imagine a small business owner who had an exceptionally good year in 2025, hitting the reporting threshold and triggering backup withholding. If their business slows down in 2026 and they only process $5,000 in payments, the platform must still withhold taxes from those payments because they were flagged the previous year. This provision could create a real cash-flow problem for people whose income fluctuates, keeping them locked into a withholding requirement even when their current activity is minimal.