Shopify 1099-K Reporting Rules Are Changing: How It Affects Your Online Store

In 2025, Shopify 1099k reporting rules are undergoing a major change—and it could impact every online store owner in the United States. If you’re an ecommerce seller using platforms like Shopify, Etsy, PayPal, or eBay, you need to pay close attention. The IRS is cracking down on income reporting, and missing these updates could result in hefty penalties or tax complications.

This article explains what the changes are, why they matter, and what Shopify sellers must do to stay compliant.

🧾 What Is a 1099-K Form?

A 1099-K is a tax form used by third-party payment processors (like Shopify Payments, Stripe, or PayPal) to report the gross amount of payments received by a seller over the course of a year. It’s meant to help the IRS track business income and ensure proper taxation.

Prior to 2022, the federal reporting threshold was:

More than $20,000 in gross sales and
Over 200 transactions

But that’s changing…

⚠️ What’s Changing in 2025?

Beginning in 2025, the IRS is enforcing a much lower threshold:

Only $600 in gross sales per year—regardless of the number of transactions.

This means:

Even casual sellers with minimal activity will now receive a 1099-K.
You must report this income to the IRS.
No more “side hustle secrecy.”

Shopify will issue a 1099-K to any U.S.-based seller who receives $600 or more in gross payments through Shopify Payments.

🤔 Why Is the IRS Doing This?

The change is part of the American Rescue Plan Act passed in 2021. The goal is to increase tax compliance, especially in the gig economy and online commerce sectors. The IRS believes that many small sellers are underreporting income.

So, what does this mean for your online store?

🛒 How Shopify 1099-K Changes Affect Online Sellers

1. More Sellers Will Receive 1099-Ks

If you make over $600/year, Shopify is now required to issue the form.

2. Side Hustlers Must Report Income

Even if you sell as a hobby, you must now report income on your tax return.

3. Accurate Bookkeeping Becomes Essential

With tighter IRS scrutiny, it’s crucial to track:

Cost of goods sold (COGS)
Business expenses
Refunds and chargebacks

4. You Might Owe More Taxes

Previously, casual sellers might have flown under the radar. Now, you may owe taxes—even if your profits were slim.

5. State-Level 1099-K Requirements May Differ

Some states (e.g., Massachusetts and Vermont) have their own lower thresholds.

📋 How to Prepare for the Shopify 1099-K Changes

✅ 1. Track All Transactions

Use tools like:

QuickBooks
Wave
Shopify reports

✅ 2. Separate Business and Personal Finances

Open a separate bank account and credit card for your business. This simplifies tracking.

✅ 3. Keep Receipts and Expense Logs

This helps reduce taxable income and proves legitimacy in case of an audit.

✅ 4. Work With a Tax Professional

Get professional help to make sense of deductions, write-offs, and quarterly payments.

✅ 5. Review Shopify’s 1099-K Eligibility

Make sure your address, EIN, and business type are properly updated in your Shopify settings.

💬 What Shopify Sellers Are Saying (Real Reactions)

Jamie (Clothing Seller): “I had no idea selling a few tees a month could trigger a tax form. Glad I found out early!”

Erik (Tech Accessories Store): “I’ve already updated my Shopify dashboard to track taxes. The $600 rule makes it serious.”

Tina (Part-Time Crafter): “Honestly, it’s stressful. But now I’m keeping digital receipts and planning better.”

🧠 Expert Advice from CPAs

We interviewed tax experts who recommend:

Setting aside 25–30% of your profits for tax time
Filing quarterly taxes if your earnings exceed $1,000/year
Keeping digital and paper backups of all financial records

🔍 Common Questions About Shopify 1099-K (FAQ)

1. Will I still get a 1099-K if I make under $600?

No. The form is only issued if you earn $600 or more through Shopify Payments.

2. Is this rule specific to Shopify?

No. It applies to all third-party payment processors—like PayPal, Venmo, eBay, and Etsy.

3. What if I sell as a hobby?

The IRS doesn’t distinguish between hobbies and businesses when it comes to income. Report it.

4. Can I deduct expenses?

Yes! Costs like materials, shipping, website fees, and advertising can reduce your taxable income.

5. What happens if I ignore the 1099-K?

You risk IRS penalties, interest, and a potential audit.

🧾 Sample Breakdown of a 1099-K for Shopify Sellers

Category	Amount
Gross Sales	$7,500
Refunds	-$500
Chargebacks	-$200
Net Income (before expenses)	$6,800
Estimated Taxes (25%)	$1,700

Make sure to subtract actual business expenses to calculate net taxable income.

📌 Final Thoughts: Time to Get Serious About Ecommerce Taxes

The 2025 Shopify 1099-K update isn’t just a small rule change—it’s a wake-up call for every ecommerce seller. Whether you run a full-time online business or casually flip products for extra cash, the IRS expects you to report and pay taxes on all income.

Don’t wait until next tax season to organize your books.

With the right tools, knowledge, and maybe a good accountant, you can stay compliant and keep growing your online store with peace of mind.

Ready to take your tax game to the next level? Start tracking your Shopify income today!