What Is Form 1099-K?
The forms in the Internal Revenue Services (IRS's) 1099 series help taxpayers report monies received from a variety of sources that aren't a paycheck. Form 1099-K, "Payment Card and Third Party Network Transactions," is the IRS form that taxpayers receive to report certain payment transactions. If you're self-employed or an independent contractor, you report 1099-K income on Schedule C of your federal Form 1040 tax return.
- You receive a 1099-K if the dollar amount or quantity of your business transactions tops a certain threshold during the year.
- Several conditions may mean you need to take special action regarding your 1099-K.
- If there’s an error on the form, such as your Social Security number in place of the tax number of your business, request a corrected form from the payment settlement entity.
Who Needs Form 1099-K?
You should receive Form 1099-K by Jan. 31 if, in the prior calendar year, you received payments from payment card transactions (including debit cards, credit cards, stored-value cards, or PayPal) and/or in settlement of third-party payment network transactions involving gross payments of more than $20,000 and more than 200 transactions. Typically, large-volume online sellers file taxes with a 1099-K.
You receive a 1099-K from each payment settlement entity (PSE) from which you received income for reportable payment transactions in the previous year. That means a payment card transaction or a third-party network transaction:
- "Payment card transaction" means any transaction in which a payment card, or any account number or other identifying data associated with a payment card, is accepted as payment.
- "Third-party network transaction" means any transaction settled through a third-party payment network—but only after the total exceeds the above thresholds.
The gross amount of a reportable payment doesn’t include adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts, or any other amounts.
Make sure the business income reported on your tax return correlates to the amounts on your 1099-Ks.
How to Read Form 1099-K
It's critical that the business income reported on your tax return correlates with the amounts on your 1099-K. Check your payment card receipt records and merchant statements to confirm that the amount on your 1099-K is accurate. Also, review your records to ensure gross receipts are accurate. Do you have reported income from all forms of payment received, including cash, checks, and debit, credit, and stored-value card transactions? Backup documentation is key.
You may need to take special action regarding your 1099-K. Is the payee taxpayer identification number (TIN) incorrect? Is the gross amount of payment card/third party network transactions or the number of payment transactions incorrect? Does the merchant category code correctly describe your business? Does the form not belong to you? if it doesn’t, contact the PSE listed on the form to try to determine why you received the document. The name and telephone number should be on the lower left of the form.
If there's an error on the form—such as your Social Security number in place of your business TIN—request a corrected form from the PSE. Keep a copy of any corrected 1099-K you receive, as well as any correspondence with the PSE.
- If you shared your credit card terminal with another person or business, your 1099-K will include payment card transactions belonging to whoever shared your terminal, in addition to your own payments. Where required, you should file and furnish the appropriate information return for each person or business with whom you shared a card terminal. The information return should include the total payment card transaction amount, in addition to any other income belonging to the other person or business.
- If you bought or sold your business during the year, your form may include payments for transactions made before you purchased or after you sold the business.
- If you changed your business structure during the year—such as incorporating or converting from a sole proprietorship to a partnership or vice versa—and continued using the same card terminal, the amount on the 1099-K may not correspond with your new entity’s tax return.
- If you allow your customers to receive cash back when they use their debit cards for purchases, the 1099-K you receive will include those cash back amounts as part of the gross payment card transactions. Generally, you would not include cash-back amounts as part of your gross receipts on your income tax return.
All copies of Form 1099-K are available on the IRS website.
The Bottom Line
The 1099-K is an important form when you report business income on your tax return. It contains a lot of information, so verify that everything on the form is correct. If you don't, you could run into trouble. If you have questions, contact your payment settlement entity and/or work with a tax preparer or expert.