You Got a 1099-K. Don't Panic. Here's Exactly What to Do.

You opened an envelope or an email, saw a Form 1099-K with a number way bigger than anything you expected, and felt your stomach drop. I hear this every filing season. Here is the most important sentence in this entire guide: the number on your 1099-K is NOT what you owe. It is not your taxable income. It is not your profit. It is the gross amount of payments processed through a platform, before accounting for fees, refunds, shipping, cost of goods, and sometimes even sales tax that the platform collected on your behalf.

Take a breath. I am going to walk you through this step by step.

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

Form 1099-K is an information return that payment settlement entities (PSEs) use to report payment transactions for goods or services to the IRS. If you sold items on eBay, Poshmark, Mercari, Depop, StockX, Etsy, Facebook Marketplace, or received payments through PayPal, Venmo, or Cash App for goods and services, the platform may be required to report those gross payments.

The 2026 Federal Threshold: $20,000 AND 200 Transactions

After years of confusion, Congress settled this. The One Big Beautiful Bill Act (OBBBA, Public Law 119-21, Section 70432), signed July 4, 2025, permanently restored the federal 1099-K reporting threshold to $20,000 in gross payments AND more than 200 transactions per platform. This killed the $600 ARPA threshold retroactively, as if it never existed.

The threshold applies per platform, not combined. A seller with $15,000 on eBay and $10,000 on Poshmark would not receive a federal 1099-K from either platform.

If You're Below $20,000, Why Did You Still Get a 1099-K?

Three possible reasons:

1. Your state has a lower threshold. Many states did not conform to the federal threshold.
2. Payment card transactions have no threshold. If a platform processes credit or debit card payments (not TPSO/app payments), there is no de minimis exception under IRC Section 6050W(d)(3)(A). Every dollar gets reported.
3. Backup withholding was applied. If you failed to provide or verify your TIN, the platform may have issued a 1099-K regardless of amount.

State Thresholds That Trigger a 1099-K Below the Federal Rule

If you live in New Jersey, you can receive a 1099-K for as little as $1,000 in gross payments, even though the federal threshold is $20,000. This catches a lot of casual sellers off guard.

Zelle Never Issues a 1099-K

Zelle is a bank-to-bank transfer network, not a third-party settlement organization under IRC Section 6050W. Zelle's official statement: "Zelle does not report transactions made on the Zelle network to the IRS." However, income received via Zelle is still taxable and must be self-reported.

Choose Your Scenario: Three Paths, Three Different Tax Outcomes

The right way to handle your 1099-K depends entirely on what you were selling and why. Here are the three scenarios.

Scenario A: You Sold Personal Items at a Loss

The situation: You cleaned out your closet and sold used clothing, furniture, electronics, or other personal items for less than you originally paid. You received a 1099-K showing the gross payments.

Tax owed: $0. Losses on personal-use property are not deductible, but you must still report the 1099-K to prevent an IRS matching notice.

How to Report: The Schedule 1 Offset Method

The IRS created a specific place on Schedule 1 (Form 1040) for exactly this situation:

• Part I, Line 8z: Enter "Form 1099-K Personal Item Sold at a Loss" and the amount (e.g., $2,000)
• Part II, Line 24z: Enter "Form 1099-K Personal Item Sold at a Loss" and the same amount ($2,000)
• Net effect on your AGI: $0

Enter the proceeds amount, not the original cost. If you sold a couch you bought for $800 for $200, enter $200 on both lines. The loss is not deductible because it was personal property, but the offset zeroes out the income so you do not owe tax on money you actually lost.

Alternative method: Report on Form 8949 with code "L" in column (f) to indicate a nondeductible loss on personal property, flowing to Schedule D. The Schedule 1 method is simpler for most people.

Scenario B: You Have a Hobby, Not a Business

The situation: You sell occasionally on Poshmark or eBay for fun. You are not trying to build a business. You sometimes make a small profit, but it is not your livelihood.

IRC Section 183 governs activities not engaged in for profit. The IRS uses a nine-factor test (Treas. Reg. Section 1.183-2(b)) to distinguish hobbies from businesses. If your activity is a hobby, here is how taxes work:

Hobby Income Goes on Schedule 1, Line 8z

Report your gross income minus your cost of goods sold as "Other Income" on Schedule 1, Part I, Line 8z. Example: $3,000 in Poshmark sales minus $2,000 in cost of goods = $1,000 reported as other income.

The COGS exception matters. Cost of goods sold is not technically a "deduction" but rather a calculation to arrive at gross income under IRC Section 61(a)(2). Even hobby sellers can offset gross receipts by the cost of the items they sold.

Hobby Expenses Are Permanently Nondeductible

This is where the bad news hits. The TCJA suspended all miscellaneous itemized deductions subject to the 2% AGI floor (IRC Section 67(g)), and the OBBBA made this suspension permanent. Platform fees, shipping costs, packaging, mileage, and all other hobby expenses are completely nondeductible under current law. This will not change. Do not rely on pre-2018 internet guides suggesting you can deduct hobby expenses.

No Self-Employment Tax on Hobby Income

The silver lining: hobby income reported on Schedule 1 Line 8z is subject to ordinary income tax but not the 15.3% self-employment tax. IRC Section 1402(a) defines self-employment earnings as income from a "trade or business," and hobbies fail that definition.

When Does a Hobby Become a Business?

If you show profit in 3 of 5 consecutive years (IRC Section 183(d)), the IRS presumes a profit motive. More practically, the IRS weighs these factors: Do you keep businesslike records? Do you devote substantial time? Do you depend on the income? Do you adjust methods to improve profitability? If yes to most, you are running a business, and you should be on Schedule C.

Scenario C: You Are a Business Reseller

The situation: You regularly source inventory from thrift stores, estate sales, clearance racks, or wholesale lots and resell for profit on one or more platforms. You track costs, manage inventory, and treat this as a business.

This is Schedule C territory. You get the full menu of deductions, but you also owe self-employment tax on your net profit.

Schedule C Walkthrough for Resellers

Part I, Line 1 (Gross Receipts): Enter the total of all your 1099-K amounts plus any unreported sales (cash, Zelle, local pickup). This number should match or exceed what the IRS sees from information returns.

Part I, Line 2 (Returns and Allowances): Deduct refunds and returns you issued to buyers.

Part I, Line 4 (COGS): Enter your cost of goods sold from Part III, Line 42. This is typically the largest deduction for resellers.

Part II (Expenses): Platform fees (Line 10), shipping (Line 27a), supplies (Line 22), mileage (Line 9), home office (Line 30), advertising (Line 8).

Part III (Cost of Goods Sold): Beginning inventory (Line 35) + Purchases (Line 36) minus Ending inventory (Line 41) = COGS (Line 42).

Line 31 (Net Profit): This is your taxable business income. It flows to Form 1040 and Schedule SE.

Self-Employment Tax Applies to Business Resellers

Your net profit is subject to 15.3% SE tax (12.4% Social Security on the first $184,500 of combined wages/SE income for 2026, plus 2.9% Medicare with no cap). The SE tax base is 92.35% of net profit (IRC Section 1402(a)(12)). Half of SE tax is deductible above the line on Schedule 1, Line 15.

At $15,000 net profit: SE tax is approximately $2,119. At $50,000: approximately $7,065. Use the SE tax calculator to run your numbers.

You Get Full Deductions

Here are the deductions available to business resellers that hobby sellers cannot claim:

The QBI deduction under IRC Section 199A also applies. Online reselling is not a Specified Service Trade or Business. You may deduct up to 20% of your qualified business income. Made permanent by OBBBA. Report on Form 8995.

Quarterly Estimated Tax Payments

If you expect to owe $1,000 or more in federal tax, you must make quarterly estimated payments (IRC Section 6654). Due dates for 2026: April 15, June 15, September 15, 2026 and January 15, 2027. Safe harbor: pay 100% of prior-year tax (110% if prior AGI exceeded $150,000) or 90% of current-year tax. Use the estimated tax calculator.

The Gross vs. Net Problem: Why Your 1099-K Is Too High

Per IRS Fact Sheet FS-2025-08 (Q8): "The gross payment amount (Box 1a) on Form 1099-K reports the total, or gross, dollar amount of reportable payment transactions. It doesn't include adjustments for fees, credits, refunds, shipping, cash equivalents or discounts. Those items are not income. You can deduct them from the gross amount."

This means a seller with $50,000 in gross sales, $8,000 in refunds, $5,000 in platform fees, and $4,000 in shipping may receive a 1099-K showing $50,000 when their actual net receipts were $33,000, and their taxable profit (after COGS) could be far less.

What Each Platform Includes in the 1099-K Gross Amount

Two Critical Platform Warnings

Amazon is the dangerous outlier. Amazon includes marketplace-facilitated sales tax in the 1099-K gross amount (Box 1a), unlike eBay and Etsy which exclude it. An Amazon seller's 1099-K can overstate actual revenue by the full sales tax amount. The explanatory note is buried on page 2 of Amazon's 1099-K. If you sell on Amazon, enter the full 1099-K on Schedule C Line 1 and deduct marketplace-collected sales tax on Line 23.

PayPal and Venmo: only Goods and Services payments count. Personal (Friends and Family) payments are excluded from 1099-K calculations. If personal payments were incorrectly included, request a corrected 1099-K from PayPal/Venmo.

Platform-Specific Notes for Sellers

eBay

eBay issues the 1099-K directly under Managed Payments. Final value fees run 13.6% on the first $7,500 per item in most categories plus a per-order fee. Download the Annual Financial Summary and Payments reports to reconcile. Sales tax collected by eBay as marketplace facilitator is excluded from the 1099-K gross.

Poshmark

Poshmark charges $2.95 on sales under $15 and 20% on sales of $15 or more. Buyers pay a flat $8.27 for prepaid USPS shipping. Poshmark states buyer-paid shipping and sales tax are not included in the 1099-K gross. Download the My Sales Report CSV to reconcile.

Mercari

Mercari charges a 10% selling fee on item price plus buyer-paid shipping (effective January 2025). The 1099-K includes seller fees, buyer-paid shipping, and sales tax collected under marketplace facilitator laws. Canceled transactions are excluded. Download Sales Reports to reconcile.

Depop

US sellers pay 0% selling fee on new listings (since July 2024) but a 3.3% + $0.45 payment processing fee through Stripe. Stripe issues the 1099-K, not Depop. If you also used PayPal on Depop, you may receive two separate 1099-Ks. The gross amount includes unadjusted sales, shipping, and refunded orders.

StockX

StockX charges an 8% to 10% transaction fee (based on Seller Level) plus 3% payment processing plus $5 shipping. The 1099-K is issued by Hyperwallet (a PayPal company) and reports the total payout amount, which is post-fee. This is unusual. StockX's gross number is lower than most platforms because fees are already deducted.

Etsy

Etsy charges a 6.5% transaction fee plus 3% + $0.25 payment processing fee, plus a $0.20 listing fee. The 1099-K includes seller fees and shipping but excludes sales tax collected by Etsy as marketplace facilitator. For sellers in the Etsy seller tax guide, full details on reconciliation and deductions.

Facebook Marketplace

Shipped items incur a 10% selling fee (minimum $0.80). Local pickup sales are free and generate no 1099-K from Meta because Meta does not process the payment. Only shipped items processed through Facebook checkout are reported. Cash and Zelle transactions from local sales are still taxable but must be self-reported.

New Jersey-Specific Rules

NJ's $1,000 Threshold Catches More Sellers

NJ requires 1099-K issuance at $1,000, well below the federal $20,000. NJ-based sellers with modest sales volumes will receive 1099-Ks even without meeting the federal threshold. Multiple platforms (GOAT, StockX, PayPal, Venmo) explicitly list NJ at the $1,000 threshold in their documentation.

Reporting Resale Income on the NJ Return

Business resale income flows from federal Schedule C to Schedule NJ-BUS-1, Part I ("Net Profits From Business") and then to NJ-1040, Line 18. NJ requires adjustments for depreciation (complete Worksheet GIT-DEP), does not allow the QBI deduction, and caps Section 179 at $35,000. NJ allows 100% deduction of business meals (vs. 50% federal). NJ estimated payments are required if liability exceeds $400 (Form NJ-1040-ES).

NJ Resale Certificate (Form ST-3): Buy Inventory Tax-Free

If you are a business reseller in NJ, you can and should obtain Form ST-3 to buy inventory without paying the 6.625% NJ sales tax. Register with NJ via Form NJ-REG (free for sole proprietors) through the NJ Business Gateway Services portal. After receiving your Certificate of Authority, complete Form ST-3 and present it to sellers when purchasing inventory. The certificate can be used at thrift stores, Goodwill, and Salvation Army, though individual stores may decline. It covers inventory purchased for resale only. Using ST-3 for personal items is illegal.

NJ Marketplace Facilitator Law

Under NJ Technical Bulletin TB-83 and P.L. 2018, c. 132, marketplace facilitators (eBay, Poshmark, Amazon, Mercari, etc.) collect and remit NJ's 6.625% sales tax on all platform transactions. You do not need to collect or remit sales tax on marketplace sales. However, for direct sales outside a marketplace (your own website, in-person, flea markets), you are responsible. NJ's economic nexus threshold is $100,000 in gross NJ revenue or 200+ NJ transactions. Important note: clothing and footwear are exempt from NJ sales tax.

Frequently Asked Questions