:max_bytes(150000):strip_icc()/GettyImages-1748688820-cc50a70ba8964221b8c93e85c2b5c764.jpg "Self-Employed? Here’s What You Need To Know This Tax Season")
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KEY TAKEAWAYS
- Fewer self-employed workers who accept payments through a third-party service, such as PayPal or Square, will receive a form reporting their 2025 income. That means it will be up to them to calculate how much they earned.
- The new ‘no tax on tips’ will likely lower the tax bill of many self-employed workers who have typically received tips for their work.
The ‘One Big Beautiful Bill’ has made many tax changes that will affect 2025 returns, which the IRS will start accepting on Monday.
The most important changes for self-employed workers are the increase in the threshold for 1099-K forms and the new “no tax on tips” deduction, said Hannah Cole, author of “Taxes for Humans” and founder of Sunlight Tax, which helps self-employed workers understand taxes.
Investopedia asked Cole about these changes and what self-employed workers need to know heading into this tax filing season. This interview has been edited for brevity and clarity.
Why This Matters
Doing taxes as a self-employed worker can be more difficult and confusing than for workers who receive a Form W-2 from their employer, which outlines their income and how much they have paid in taxes thus far.
INVESTOPEDIA: Are there any changes that happened in the 2025 tax year that you recommend self-employed workers look into?
HANNAH COLE: One of the biggest things people will notice is that there has been a change to the limits of the rule for issuing 1099-Ks. Those are the forms you will receive if you get income through a third-party platform, whether it’s a payment process or an online seller. So if you’re a creative person and you make sales through Etsy, or if you are just running a small business and you process credit card payments through something like Stripe or Square, those companies are required to send you a form called a 1099-K.
There had been a trend happening where the IRS was trying to match a 1099-NEC (Non-Employee Compensation) reporting threshold to the 1099-K reporting threshold. Just to avoid confusion, the threshold for reporting a 1099-NEC for non-employee compensation is $600. And the 1099-K threshold was coming down, headed downward toward the $600 ultimate goal.
But those companies, that is a lot of paperwork for them, and they have lobbied against the burden of that and wanted it raised again. Essentially, that cap just got reverted to the old one. So if you had more than 200 transactions and earned more than $20,000, you’ll get a 1099-K [from the third-party company].
FAST FACT
The 1099-K form is sent to any worker who receives payments for selling goods or providing services. There is no threshold for workers who received payments in 2025 through a “payment card transaction,” which refers to payments automatically transferred to the worker or their business. The higher threshold affects self-employed workers who take payments through third-party platforms such as PayPal, Square, and Etsy.
What’s important for a self-employed person to know is that the law about reporting your income is no different than it ever has been. If you receive income through your self-employment, you have to report it, and you owe taxes on it. You just might not get a 1099-K from Stripe or Square if you haven’t exceeded that threshold.
Something that people should also be aware of, though, is that a lot of states have been trying to line up with that federal trend and lower their threshold. So some states will still require 1099-K reporting for a $600 transaction. It is important to be aware that your state rules could be stricter than the federal.
INVESTOPEDIA: What do self-employed workers need to know about the ‘no tax on tips’ deduction, which is most likely of all the new deductions from the ‘One Big Beautiful Bill’ to impact self-employed workers?
COLE: So the ‘no tax on tips’ rule is for people who are in a field that regularly and customarily gets tips. That’s important to realize, for example: if you’re an accountant and you get a tip, that’s not your standard practice. And so this rule doesn’t apply to an accountant for that reason. There’s a list of all the regular and customary fields that the law applies to. So, a server in a restaurant, for sure, a barber, a hairdresser, that kind of person, this new deduction applies.
The deduction is up to $25,000 in tips for married filing jointly, $12,000 if you’re single. Of course, you have to be reporting the tips to get the tax break. And it’s just a break on the federal income tax. It’s not a savings on Medicare or Social Security. You still owe that for the tips.
It’s a good idea to bookkeep, be tracking your income and your expenses more often than once a year at tax time, because knowing how much taxable profit you have throughout the year is gonna allow you to pay quarterly taxes with more accuracy and know what your adjusted gross income for the year is gonna be. It’s good for a self-employed person not to have their income be a surprise.
A lot of self-employed people just get so busy because they have so much to track. And you don’t have an employer automatically paying your taxes for you. You have to pay quarterly taxes. You have to know what your profit is. You have to keep receipts, on top of doing bookkeeping. However, spending five minutes playing with an online income tax calculator is a great way to just get a sense of what might be coming for you in terms of taxes.
