Yes, you are required to report income in the tax year you received and had an unrestricted right to the money. You will put nothing on your 2024 tax return for federal or state withholding since it did not occur in 2024.
It's true they are not required to issue a 1099-MISC in 2024 because your $500 is below the filing requirement. However, the Payer should know that only the amount paid in 2025 should be included on the 1099-MISC they will issue to you. You can double check that with them so they issue the correct amount on your 2025 tax document. Likewise they will report only withholding that was taken from your gross amount and report that in 2025 also.
@vmmiller77
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