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Understanding Your 1099-K: What It Means for Your Tax Return

  • February 19, 2026

If you sell products on Etsy, drive for a ride-sharing service in Lexington, or accept payments via Venmo for your side business in Morehead, you’ve likely been hearing about the “1099-K” for a few years now. With shifting thresholds and new legislation, many Eastern Kentucky entrepreneurs are understandably confused about what forms they will receive and what they actually owe.

At Bluegrass Accounting and Tax Solutions, we believe in cut-through-the-noise clarity. Here is what you need to know about Form 1099-K for the current tax season and how to ensure your filing is accurate.

Understanding Your 1099-K:

We've broken down the documents you'll need into four simple categories.

1. The 2025 Threshold “Rollback”

For several years, the IRS planned to lower the reporting threshold for third-party payment apps (like PayPal, Venmo, and Cash App) to $600. However, following the passage of the “One Big Beautiful Bill” in July 2025, the reporting requirements for the 2025 tax year were retroactively rolled back to the old standard.

For most 2025 returns, you will likely only receive a Form 1099-K if:

  • You had more than $20,000 in gross payments AND
  • You had more than 200 transactions.

Tip: While you might not receive a form this year if you fall under these numbers, some platforms may still issue them based on their own policies or specific Kentucky state requirements. Always check your email and app dashboards in January.

2. Form or No Form, All Income is Taxable

The biggest misconception we see in Eastern Kentucky is the “No Form, No Tax” myth. Whether you receive a 1099-K or not, the IRS (and the Kentucky Department of Revenue) requires you to report all business income.

If you made $5,000 selling handmade goods or consulting, that is taxable income, regardless of whether a third-party processor sent a formal document to the IRS. Relying solely on 1099-Ks to determine your income is a fast track to an audit if your bank records show otherwise.

Tip: Keep a dedicated spreadsheet or use accounting software like QuickBooks to track every dollar coming in. Don’t wait for a form to tell you what you already know you earned.

3. Distinguishing Business from Personal

One reason for the legislative shifts was the confusion between business payments and personal transfers (like splitting a lunch bill at a Lexington restaurant or sending a birthday gift). The IRS does not want to tax your personal reimbursements.

Tip: If you use apps like Venmo or PayPal, ensure you are using a “Business Profile” for work and a “Personal Profile” for friends and family. This clear separation is your best defense if the IRS ever questions the nature of your digital transfers.

4. The Importance of “Matching”

  • The IRS uses an automated system to match the 1099-Ks they receive from processors with the numbers you report on your tax return. If a processor reports that you received $25,000 but you only report $15,000, it will likely trigger an automated notice or an audit.

    Tip:     If you receive a 1099-K that is incorrect—for example, it includes personal gifts or double-counts income reported on a 1099-NEC—don’t just ignore it. Reach out to the payment processor to request a correction, and keep meticulous notes for your CPA.

5. Why Professional Guidance is Key

Tax laws are moving targets. What was true in 2024 changed mid-year in 2025, and will likely shift again. Managing these nuances while running a business is a lot to ask of any owner.

At Bluegrass Accounting and Tax Solutions, we stay on top of these federal and Kentucky-specific changes so you don’t have to. We help you maximize your deductions—like home office costs, supplies, and mileage—to ensure you only pay what you truly owe.

Gain Confidence This Tax Season

Whether you are a seasoned business owner in Lexington or a freelancer just starting out in Morehead, understanding your reporting obligations is the first step toward a stress-free tax season. Don’t let a surprise form (or the lack of one) derail your finances.

Ready to get your 2025 taxes right? Contact our team today to schedule your consultation.

Frequently Asked Questions

Yes. You are legally required to report all income earned through your trade or business, regardless of the amount and regardless of whether a 1099-K, 1099-NEC, or 1099-MISC was issued.

First, try to get a corrected form from the payment app. If they won’t issue one, you must report the full amount but then “offset” the personal portion on your return with an explanation so you aren’t taxed on it. This is a common area where a CPA’s help is invaluable.

Kentucky generally follows federal guidelines, but the state only requires the direct filing of 1099 forms with the Department of Revenue if Kentucky state tax was withheld from the payments. However, the income itself remains subject to Kentucky’s flat income tax.

The best way is to separate your “church and state.” Have a dedicated business bank account and dedicated business profiles on all payment apps. Never mix personal “pizza money” with client payments.