IRS Clarifies 1099-K Threshold for 2023 & 2024
The IRS announced that the proposed $600 threshold for 1099-Ks will not be implemented in 2023. The previous threshold (more than 200 transactions and more than $20,000) will continue to apply for 2023. If you did not meet both of these minimum thresholds, you should not receive a 1099-K from a third-party payment processor.
The IRS has also proposed a “phase-in” of the new threshold for 2024. As of now, you can expect to receive a 1099-K if your total transactions total more than $5,000 in 2024. There is no minimum number of transactions. It seems the end-goal is to implement the $600 threshold in 2025, but we will need to wait and see how things progress over the next 12 months.
Additional Considerations for Gamblers
It is important to clarify that 1099-Ks are not associated with your reportable gambling winnings and losses. A 1099-K only reports transactions that were completed on your behalf by a third-party payment processor. This is a measure of “payment activity”, not necessarily taxable income.
For gamblers, this almost exclusively applies to withdrawals from online gaming accounts. Below are a few examples that could apply in 2024 with the reduced $5,000 reporting threshold:
Scenario 1
John deposits $10,000 on his Draftkings sports book account. Over the course of the year, he accumulates $75,000 of winning wagers and $50,000 of losing wagers. Before the end of the year, he withdraws the remaining $35,000 balance from his account using PayPal.
John must report gambling winnings of $75,000 and gambling losses of $50,000. He will also receive a 1099-K for $35,000 from PayPal. However, this $35,000 represents a return of his initial deposit plus his net gambling profit (which he is already properly accounting for on his return). To prevent being double-taxed on this amount, John must report the $35,000 on his tax return as “nontaxable” income.
Scenario 2
John deposits $10,000 on his Draftkings sports book account. Over the course of the year, he accumulates $50,000 of winnings wagers and $52,000 of losing wagers. Before the end of the year, he withdraws the remaining $8,000 from his account using PayPal.
John must report gambling winnings of $50,000 and gambling losses of $50,000. He will also receive a 1099-K for $8,000 from PayPal. However, this $8,000 represents a return of his initial deposit. To prevent being double-taxed on this amount, John must report the $8,000 on his tax return as “nontaxable” income.
Scenario 3
John deposits $10,000 on his Draftkings sports book account. Over the course of the year, John ends up using other books and never makes a bet with Draftkings. Before the end of the year, he withdraws all $10,000 from his account using PayPal.
John does not have any gambling winnings or losses to report. He will receive a 1099-K for $10,000 from PayPal. However, this $10,000 represents a return of his initial deposit. To prevent being double-taxed on this amount, John must report the $10,000 on his tax return as “nontaxable” income.
Closing Thoughts
Gambling winnings and losses are taxable at the time they occur. This is true whether or not a tax form is issued for these winnings. They must be reported correctly on your tax return in the year the wagers are graded. This remains true even if you do not withdraw any winnings from your online gambling account.
If you receive a 1099-K related to online gambling withdrawals, it must be reported on your tax return. If you properly report your gambling winnings and losses, the payment activity reflected on your 1099-K does not represent taxable income. If you fail to report or disclose the payments reported on the 1099-K, you will receive a notice from the IRS.