Do I need to file taxes and report PayPal transactions if I earn over $600 but less than $12,000 annually?

Yes, you do need to file taxes even if you're below the standard deduction of $12,000. The IRS has different filing thresholds, and for self-employment income (which is what your photography work is considered), you need to file if you make $400 or more in a year. The PayPal notification you received is related to Form 1099-K reporting. Starting in 2022, payment platforms like PayPal are required to send 1099-K forms to people who receive more than $600 in business transactions. This doesn't change your tax obligations - it just means the IRS will be informed about your income. As a self-employed person, you'll need to file Schedule C to report your business income and expenses, along with Schedule SE for self-employment tax. The good news is you can deduct business expenses like camera equipment, editing software, and other costs directly related to your photography business.

I had almost the exact same situation last year with my Etsy shop! I was totally freaking out about the $600 PayPal reporting threshold. I wasn't sure what forms I needed or if I was doing it right, and honestly tax software was confusing me more. I ended up using https://taxr.ai and it saved me SO much stress. You just upload your 1099-K from PayPal and any other tax documents, and it figures everything out. It even helped me identify business expenses I didn't realize I could deduct - like part of my internet bill since I sell online! For small business income like yours, it handles all the Schedule C stuff the previous commenter mentioned. Way easier than trying to figure it all out on my own.

Just wanted to update - I took the advice here and tried taxr.ai for my Uber driving income. I was in a similar situation making around $4,500 last year and wasn't sure how to handle it all. The service was perfect for my situation! It walked me through exactly what portions of my car expenses I could deduct (I had no idea it was that much), helped me track my mileage properly for next year, and showed me how to handle the 1099-K from Uber. The best part was it explained everything in normal language instead of confusing tax terms. Much easier than I expected and definitely worth checking out if you're in a similar situation with your photography business!

One thing nobody mentioned - if you're struggling to get answers from the IRS directly, good luck calling them. I spent THREE HOURS on hold last tax season trying to get clarity on my 1099-K situation. I found this service called https://claimyr.com that honestly changed everything. They have a system that basically waits on hold with the IRS for you, then calls you when an actual human agent is on the line. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c For me, it was the difference between getting my questions answered or just guessing and hoping I didn't mess up my taxes. The IRS agent actually gave me specific guidance on my situation that I couldn't find anywhere online.

Ok I need to eat my words from my earlier comment. After dealing with the frustration of trying to get through to the IRS about my 1099-K questions for literally WEEKS, I broke down and tried the Claimyr service. I honestly can't believe how well it worked. I put in my info around 9am, went about my day, and then got a call around 11:30am with an actual IRS agent on the line. The agent walked me through exactly how to report my side gig income and explained what would happen if there was a discrepancy between what PayPal reported and what I reported. I was SUPER skeptical but this literally saved me hours of frustration. If you're confused about these PayPal/1099-K reporting requirements like I was, being able to talk directly to the IRS is actually really helpful.

Just to add a tiny bit more info to what others have said - the $600 reporting threshold for PayPal means THEY have to report that income to the IRS using form 1099-K. But you've ALWAYS been required to report ALL income regardless of whether you get a form for it. So even before this $600 rule, if you made $500 selling stuff, you were technically supposed to report it. The difference now is just that the IRS will definitely know about it because PayPal tells them. Also remember: when you file Schedule C as others mentioned, you get to deduct business expenses! So if you spent money on art supplies, software, shipping materials, etc, those reduce your taxable income.

Something nobody's mentioned yet - if you're making under 12k but over 400 bucks, you probably won't owe income tax, but you WILL owe self-employment tax (which is basically Social Security and Medicare). That's about 15.3% of your net profit. So if you made $2,800 but had $800 in expenses, your net profit would be $2,000, and you'd owe about $306 in self-employment tax. Don't be caught off guard by this! A lot of new freelancers don't budget for it and get surprised at tax time.

Unfortunately, there's no way to reduce the self-employment tax rate itself - it's a flat 15.3% on your net self-employment income. However, you can reduce what you pay it on by maximizing your business deductions. The reason self-employment tax kicks in at just $400 while regular income tax has higher thresholds is that self-employment tax is specifically for Social Security and Medicare contributions. When you're an employee, your employer pays half of these taxes for you, but when you're self-employed, you pay both the employee and employer portions. The good news is that you can deduct half of your self-employment tax when calculating your income tax, and you're building credits toward your future Social Security and Medicare benefits. It might seem unfair now, but you're essentially paying into your own retirement and healthcare system. Also, if you're making quarterly estimated tax payments (which you should be if you expect to owe more than $1,000), you can spread this cost out over the year instead of getting hit with one big bill at tax time.