I received a 1099-K for dog walking in 2022. It was $1,065, less than $20,000. Is this taxable income for FED? I also live in Illinois - is it taxable in Illinois?

[Dawn Bena]

I received a 1099-K for dog walking. It was $1,065, less than $20,000 threshold as stated in Section 6050W(e). When I enter the 1099-K in TurboTax, this income is taxed even though it is below the threshold. Why is that?

[HelenC12 · Accepted solution]

Yes, the amount of income you received is taxable on your federal return and on your state return. Whether you get a tax form or not, doesn't matter. Per IRS, all income is taxable unless the IRS code specifically states it's not taxable. A list is available in Publication 525, Taxable and Nontaxable Income.

You're considered self-employed—even if it’s just something you do on the side, like dog walker, drive for Uber, babysit, or blog.

Your taxes are handled differently than when you're an employee of a company.

As a self-employed individual you:

• Will pay self-employment tax (because income tax, Social Security, and Medicare aren’t deducted from your pay)
• Will get a 1099-MISC, 1099-NEC, or 1099-K (unless you only accept cash or personal checks)
• File a Schedule C, Form 1040 (this is how you report business expense or loss of income)
• Can deduct money you spent on work-related expenses (like mileage, home office expenses, and mobile phone use)
• Can estimate the taxes that are due and make quarterly estimated tax payments during the year

If your self-employment income was only from cash, personal checks, credit card payments, or cryptocurrency 

1. Open or continue your return in TurboTax
2. Search for Schedule C and select the Jump to link at the top of the search results
3. Answer Yes on the Did you have any self-employment income or expenses? screen
   • If you land on the Your 2022 self-employed work summary page, select Review next to the work you're adding income for
4. Answer the questions on the following screens until you arrive at Let's enter the income for your work
5. Select Other self-employed income and select Continue
6. On the next page you can enter any cash, personal checks, credit card payments, or cryptocurrency (Form 1099-K) related to your self-employment

Related Information:

• Where do I enter my self-employment business expenses, like home office, vehicle mileage, and suppli...
• What self-employed expenses can I deduct?
• Am I considered self-employed?

[Dawn Bena]

Thank you.  But how is the $20,000 threshold applied in this situation?  When I read Section 6050W(e) Notice 2023-10, it appears that if income is below $20,000 it does not have to be reported.  Can you please elaborate on this?  Thank you.

[CatinaT1 · Accepted solution]

The $20,000 threshold is for the issuer, not the taxpayer. Taxpayers must report all income regardless of whether it is being reported on a form or not.

Even though the new rules for issuing 1099-K's were delayed until 2023, many Third Party Settlement Organizations (TPSO) may have filed them using the new threshold.   

If a 1099-K was issued in any amount, it will also be sent to the IRS. Either way, the income must be reported.