Michigan’s commerce is increasingly digital, and the federal reporting regime for that commerce is catching up fast. For tax year 2025, third-party settlement organizations and marketplace platforms face a dramatically lower dollar trigger for Form 1099-K reporting: $2,500 in gross payments for goods or services, with no minimum transaction count. That figure is a steep drop from prior norms and a continuation of the Internal Revenue Service’s phased approach that put $5,000 in place for the 2024 calendar year. The goal of this article is practical rather than academic. If you operate or sell through a Michigan marketplace, whether you are a large platform facilitating thousands of sellers, a midsized ticket exchange, a niche craft site, or a solo seller using payment apps for side-gig revenue you need a clear, Michigan-specific roadmap for the next twelve months. Think of the Tish.Law explainer video and the 4×3 landscape thumbnail as the top-level brief; what follows is the extended field manual.
The first thing to understand is the nature of the threshold and the kinds of transactions it covers. Form 1099-K is an information return that payment card processors and third-party settlement organizations must send to payees and the IRS to report the aggregate amount of payments for goods and services. A marketplace that contracts with buyers and sellers, collects payments, and settles those funds to sellers is squarely in scope. So are platforms that use a payment processor to push payouts. What triggers a 1099-K is not net income and not profit it is gross payments for reportable transactions routed through the TPSO rails. Personal transfers, true gifts, and reimbursements among friends are not the intent of the rule, but the real world is rarely neat; platforms need strong intent tagging and seller education to keep non-commercial payments out of the 1099-K stream. The $2,500 figure is not a suggestion; once a seller’s aggregate gross goods-and-services receipts for the calendar year reach that amount, the platform must furnish a 1099-K by the following January 31 and file with the IRS as required. For calendar year 2024 the trigger is $5,000, so the 2025 drop is not theoretical. It is the new operational baseline.
Michigan overlays a distinctive state law context onto this federal reporting change. Michigan is a marketplace facilitator state for sales and use tax, which means that once a platform meets the economic nexus threshold based on prior-year activity, it is generally responsible for collecting and remitting the six percent sales tax on facilitated Michigan sales, and for maintaining exemption documentation for properly exempt transactions. That sales tax duty is separate from federal income reporting, but in practice the systems that support one obligation often support the other. Your onboarding flow, seller identity controls, and transaction classification logic should satisfy both regimes. If your Michigan sales tax posture is mature registration complete, exemptions tracked, and filings timely you already have a skeleton for what the 1099-K threshold change will demand. If not, this is the moment to institutionalize tax discipline across the organization, because 1099-K scrutiny tends to spill over into other compliance areas.
A platform’s most immediate task is identity hygiene. A 1099-K cannot be filed without correct name and taxpayer identification information for each reportable payee, and the IRS’s TIN-name matching rules are unforgiving when volumes are high. In practical terms, that means your 2025 seller onboarding must treat valid W-9 capture as a gating item. Do not let a seller transact at scale, or withdraw funds above a modest de minimis level, until you have a certified W-9 on file and have run a real-time or batch name/TIN check. If you accept sellers that are entities, you need the correct entity name and EIN rather than an owner’s Social Security number. If a seller is a disregarded entity or single-member LLC, you still need to identify the correct payee for federal reporting purposes. Michigan sellers, like everyone else, sometimes move, change names, merge, or rebrand, and every one of those changes can create a mismatch that propagates errors into your January file builds. A clean identity graph is the best defense against a noisy 1099 season, and with a $2,500 trigger you will have many more reportable sellers than you did at $20,000 or even $5,000.
Backup withholding is the second pillar to build now rather than later. When a seller refuses to provide a TIN or provides one that fails validation, federal law obligates the payor to withhold a percentage from payments and remit those amounts to the Treasury. That is not a theoretical worst case; with a threshold of $2,500, you will inevitably cross the line for small, casual, or newly formed sellers who have not learned the tax ropes. Your payout engine therefore needs a “fail safe” mode that either halts payouts pending TIN remediation or automatically applies backup withholding and accounts for those dollars as a separate liability. Your general ledger and your payout ledger must agree, and the platform has to be able to produce a reconciliation that shows every backup-withheld dollar moving from an identified seller’s gross receipts to the withholding bucket and then out to the IRS on Form 945. That workflow is routine for mature marketplaces and surprisingly exotic for younger ones; 2025 will not be kind to platforms that treat it as an optional feature.
Beyond identity and withholding, the third discipline is transaction taxonomy. Form 1099-K reports gross payments for goods and services, not tips handled as pass-throughs, not refunds later issued to buyers, and not adjustments unrelated to revenue. The form is blind to your net settlement math. If you deduct platform fees before paying sellers, the fees do not reduce the reported amount. If you net out refunds, the report may still show a higher number than the seller expects. The answer is not to shoehorn adjustments into the 1099 stream; the answer is to explain, document, and engineer the accounting so that you can reconcile your reportable gross to your payout net for every seller and produce that reconciliation if an auditor, the IRS, or the seller asks for it. Michigan sellers who also file state sales or use taxes will look to those reconciliations to check that reported gross aligns with taxable sales where it should and diverges where it legitimately must. A clean taxonomy makes the rest of your compliance program credible.
Communication is the fourth discipline that separates calm Januarys from chaotic ones. If a platform waits until mid-December to tell sellers about the $2,500 threshold, it will spend January answering angry support tickets from surprised hobbyists and casual resellers. A smarter approach is to begin messaging as soon as a seller approaches the mid-year mark. When a seller crosses $1,000 in gross goods-and-services payments, your dashboard should display an unobtrusive banner explaining what the $2,500 threshold is, how Form 1099-K works, and what the seller should expect at year-end. When the seller hits $2,000, the system should elevate the message and prompt for a W-9 if you do not already have one on file. In December, when the seller crosses $2,500, the platform should display a brief explanation that a form will be furnished and should provide a download link when it is available. Most of these touchpoints can be delivered by email and in-app notices, and the content can be reused across channels. The messaging should be short, plain, and focused on the basic facts; the less legalese, the better. Michigan sellers will appreciate seeing one more sentence that explains how 1099-K differs from state sales tax filings and why the numbers will not match in a one-to-one way.
With identity, withholding, classification, and communication anchored, a well-run platform then turns to data engineering. The reporting calendar does not change because New Year’s Day lands awkwardly on a weekday. File builds in January are marathons on tight sprints. That reality rewards platforms that maintain a continuously updated 1099-K dataset rather than capturing the year’s activity in a single end-of-year extract. If your warehouse ingests transaction-level data, enriches it with seller identity, flags goods-and-services intent, calculates a running reportable gross, and marks exclusions based on clear, reviewable rules, the final January assemble is a matter of formatting rather than discovery. You should be able to preview who will receive a 1099-K by November 30, identify anomalies, and resolve them before the holiday support crunch. A Michigan platform with heavy seasonal traffic in the fall football tickets, leaf-season rentals, holiday markets can especially benefit from treating the data pipeline as a year-round product rather than a winter emergency.
Sellers have their own to-do list, and the smartest platforms help them complete it. A Michigan seller who uses a marketplace for side-gig revenue will want to keep business payments and personal transfers separate, ideally with different accounts and payment handles. The seller should review their profile, confirm that the name and TIN match the IRS’s records, and upload a W-9 that reflects any recent changes. If the seller is truly a hobbyist with occasional sales, the $2,500 threshold draws a bright line between casual and reportable activity. If the seller is comfortably in business territory, the 1099-K is not the only paper they should expect; the seller’s Michigan sales tax obligations, if not already handled by the marketplace as facilitator, need to be measured against the state’s economic nexus tests and the seller’s own direct-sale channels. A careful seller sets up a basic ledger, scans receipts, and tracks costs of goods sold, shipping, and ordinary and necessary expenses. The 1099-K will report gross receipts that look larger than the seller’s taxable income; the difference is explained by a year’s worth of substantiated expenses.
Ticket exchanges, apparel resellers, sports-memorabilia shops, short-term rental hosts, and peer-to-peer equipment marketplaces will feel this threshold shift differently, and Michigan has all of them. High-ticket, low-volume categories may trip the $2,500 trigger in a small handful of transactions; those sellers need to treat identity and documentation as day-one tasks because there is no long runway to cross-check TINs. Low-ticket, high-volume categories, by contrast, will accumulate gross over many small sales; those sellers benefit most from educational nudges along the way and from dashboards that show progress toward the threshold in real time. In both cases, the 1099-K figure is not a verdict on a seller’s tax position but a starting point for annual reporting. A seller who receives a form should not panic if the timing looks odd, if one platform’s number does not match another’s, or if the amount seems higher than expected. The platform’s help center should explain common reasons for perceived mismatches, and the seller’s own books should bridge the rest.
Charities and fundraising activities need special treatment. Michigan nonprofits that use marketplaces or payment apps to collect donations sometimes see those dollars swept into the 1099-K stream because the platform’s systems cannot easily distinguish donation revenue from commercial receipts. The cure is documentation and tagging. A nonprofit should certify its status with the platform, provide an IRS determination letter, and confirm that its account is coded for donations. A dual-purpose seller one who sells items and also raises funds should ideally keep those flows separated at the account level. The platform, for its part, should build and test logic that excludes properly documented charitable gifts from the goods-and-services tally without creating a loophole for sellers who would prefer to characterize commercial revenue as donations. With the threshold at $2,500, even modest community fundraisers can become reporting candidates if the tagging is sloppy.
Mixed-role businesses are another edge case that Michigan’s entrepreneurial community knows well. A small retailer might sell both in-store and online, some sales occurring on a marketplace and others on a proprietary website, with still others routed through peer-to-peer payment apps at pop-ups and festivals. The 1099-K regime is indifferent to the business’s channel strategy; if gross goods-and-services payments through a third-party settlement platform exceed $2,500 in 2025, a form must be issued for that specific platform’s stream. The retailer will therefore receive multiple forms from different payment processors and marketplaces, each reporting its own slice of the pie. The retailer’s Michigan sales and use tax filings will reflect the totality of taxable sales, with the marketplace-facilitated portion usually handled by the facilitator. That fragmentation can be confusing, and the only antidote is an internal ledger that tracks all channels, allocates fees and refunds correctly, and makes the owner’s federal and state filings match economic reality.
Platforms should also invest in dispute resolution protocols before the 1099-K season opens. Even when your data is strong and your identity graph is pristine, some sellers will contest their forms. A seller might claim that a payment stream is personal and not commercial, that certain transactions were voided, or that a duplicate account is skewing the totals. Your team needs a process that can accept a dispute, evaluate it against transaction-level evidence, and resolve it quickly ideally with a dashboard that shows the seller the exact set of transactions included and the reason each was classified as goods or services. In edge cases where a correction is warranted, your workflow should support issuing a corrected 1099-K and updating your IRS file without breaking the rest of your batch. The platforms that maintain seller trust are the ones that can fix honest mistakes swiftly and document the fix.
Another theme for 2025 is vendor coordination. Most Michigan marketplaces rely on outside partners to handle parts of the 1099-K life cycle payment processors to move funds, KYC vendors to validate identities, tax platforms to build and e-file forms, and print-and-mail houses to furnish copies to payees. The lower threshold increases the population count and therefore the integration pressure. This is not the year to accept hand-offs that are described only in a slide deck. Run an end-to-end test in the fall with a realistic sample size, check the outputs against your warehouse, ensure the vendor’s address formatting and mailing logic handle Michigan apartment numbers and rural routes gracefully, and verify that undeliverable mail is tracked and remediated. If your processor will file on your behalf, make sure your legal and information security teams have the right agreements in place and that you retain the audit trail you will need to answer an IRS notice.
Speaking of notices, prepare the back office for one inevitable byproduct of the $2,500 threshold: more forms means more mismatches, which means more IRS CP2000-style letters and B-notices if name/TIN combinations do not line up. Your finance or tax operations function should have a playbook for responding to those letters, including gathering affidavits from sellers when required, applying backup withholding when the notice compels it, and correcting records where appropriate. The more you can standardize that flow and keep it on an expected timeline, the less it will disrupt day-to-day operations. A Michigan-based platform that keeps its support team looped in can turn what would otherwise feel like a compliance hassle into a mark of professionalism for sellers who rely on the marketplace as a steady business partner.
Data privacy and security sit in the background of all of this work. Collecting TINs, issuing tax forms, and exchanging files with vendors increase your exposure if you do not apply strong access controls and encryption. Michigan businesses have their own data breach notification obligations under state law, and a breach that exposes seller tax IDs during the January rush could trigger both reputational damage and legal duties. Engineer access control so that only the personnel who must work with raw identity data can see it, log and review that access, and rotate any temporary access you grant for the filing season. Purge test files that contain live data. The best technical teams treat the 1099-K program as a sensitive data domain, not a casual spreadsheet exercise.
One subtle but important change that accompanies the lower threshold is cultural rather than technical. For years, many small sellers have equated “no 1099-K” with “no taxes due.” That was never legally correct, but the reporting gap allowed the misunderstanding to persist. The $2,500 figure collapses that gap for a large share of casual sellers. Platforms that frame the change as part of being in business not as an onerous new burden, but as a routine piece of operating in a more digital economy will reduce friction and churn. Michigan’s small business community is pragmatic; most sellers will adapt if they understand what is expected of them and if the platform makes it easy to comply. Friction grows when the forms arrive without context or when sellers discover that their data does not match what they expected.
Looking ahead, the $2,500 threshold should be treated as both a floor for engineering investments and a ceiling on complacency. If 2025 is your first year building a rigorous 1099-K program, design it to scale to a world in which thresholds may fall again or enforcement may become more assertive. That means normalizing your transaction data with clear intent flags, preserving immutable audit logs, and building modular pipelines that can adjust to new inclusion or exclusion rules without rewriting the entire system. It means maintaining a living knowledge base where Michigan-specific questions like the interplay between marketplace-collected sales tax and a seller’s own use tax obligations are answered in plain language and backed by references. It means treating seller trust as an asset that you build, not as a side effect of operating the platform.
For Michigan marketplaces, there is an additional strategic opportunity in the threshold change. The platforms that handle tax cleanly will increasingly win serious sellers who want to spend their time sourcing products and serving customers, not deciphering year-end forms. If your marketplace can give sellers a clean year-end packet that includes the 1099-K, a fees-and-adjustments statement, and a Michigan-aware sales tax summary where appropriate, you will be delivering tangible value beyond lead generation and checkout. Your marketing team can say so out loud. In a crowded market, “easier taxes” is a differentiator.
Sellers should view 2025 as the year to professionalize, even if the business remains part-time. That may mean opening a separate bank account, choosing accounting software that imports marketplace data directly, and working with a preparer who understands both federal and Michigan tax. It may mean registering for sales tax in Michigan if you run direct channels in addition to marketplace sales and exceed the state’s economic thresholds. It may mean documenting inventory and cost of goods sold more carefully so that federal taxable income bears a sensible relation to the 1099-K gross. None of this is glamorous, but it is what makes a business a business. The $2,500 figure is a nudge in that direction.
Finally, keep one eye on the calendar. The operational work of getting ready for the 2025 threshold change belongs to 2024 and early 2025, not to January 2026 when forms are due. A Michigan marketplace that spends the summer validating TINs, the fall testing pipelines, and the winter pre-building files will sleep better in January. A seller who spends a weekend in March separating business and personal flows, setting up basic books, and cleaning profile data will have an easier time next spring. None of this requires expensive consultants or esoteric law; it requires attention, communication, and a willingness to treat the new threshold as an ordinary part of selling in a digital state.
There is no silver bullet for 1099-K at $2,500. There is only the regular work of identity, withholding, classification, communication, data engineering, dispute resolution, vendor management, security, and seller education and the recognition that those disciplines are assets rather than chores. Michigan’s marketplaces and sellers who do this work now will be the ones who start the 2026 tax season not with panic, but with confidence.
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Tishkoff PLC specializes in business law and litigation. For inquiries, contact us at www.tish.law/contact/. & check out Tishkoff PLC’s Website (www.Tish.Law/), eBooks (www.Tish.Law/e-books), Blogs (www.Tish.Law/blog) and References (www.Tish.Law/resources).
Sources:
IRS News Release IR-2024-299, “IRS provides transition relief for third-party settlement organizations. https://www.irs.gov/newsroom/form-1099-k-faqs-third-party-filers-of-form-1099-k
Form 1099-K threshold is $5,000 for calendar year 2024, with further phase-in guidance. https://www.irs.gov/newsroom/irs-provides-transition-relief-for-third-party-settlement-organizations-form-1099-k-threshold-is-5000-for-calendar-year-2024
Accounting Today, “IRS phases in Form 1099-K threshold at $2,500 in 2025.” https://www.accountingtoday.com/news/irs-phases-in-form-1099-k-threshold-at-2-500-in-2025
Grant Thornton Tax Flash, “IRS sets $2,500 threshold for Form 1099-K in 2025.”https://www.grantthornton.com/insights/alerts/tax/2024/flash/irs-sets-threshold-for-form-1099k-in-2025
PwC Insight, “Transition period for minimum threshold for Form 1099-K reporting (Notice 2024-85).” https://www.grantthornton.com/insights/alerts/tax/2024/flash/irs-sets-threshold-for-form-1099k-in-2025
Michigan Department of Treasury, “Marketplace Facilitator & Marketplace Seller FAQs.” https://www.michigan.gov/taxes/business-taxes/sales-use-tax/information/remote-seller-faq
This publication is for general informational purposes and does not constitute legal advice. Reading it does not create an attorney-client relationship. You should consult counsel for advice on your specific circumstances.