What IRS Form 1099-K Is For
IRS Form 1099-K reports total payments received through payment cards, payment apps, and online marketplaces. It is issued by payment settlement entities, such as credit card processors or third-party settlement organizations, to both taxpayers and the IRS. The form helps ensure that all business owners accurately report their taxable income when filing their individual income tax return. It includes gross payments from the sale of goods or provision of services, excluding refunds, fees, and business expenses.
When You’d Use IRS Form 1099-K
Form 1099-K applies to anyone who receives payments through third-party network transactions or electronic payments during the same calendar year. Payment settlement entities send these forms by the due date of January 31 following the end of the tax year. While you do not file the form yourself, you must report payments on your federal income tax return. If you receive a corrected form or realize an error later, you can file an amended tax return using Form 1040-X.
Key Rules or Details for 2023
- Reporting threshold for 2023: For the 2023 tax year, third-party settlement organizations must issue Form 1099-K if total payments exceed $20,000 and involve more than 200 payment transactions. The IRS delayed the lower $600 threshold for this year.
- Direct credit or debit card payments: When you accept payments through a payment card processor, there is no minimum reporting threshold. These forms are required for all payment card transactions regardless of the total amount.
- All income must still be reported: Even if you fall below the reporting threshold, federal income tax laws require that all business income be reported on your tax return. This includes certain payments not shown on Form 1099-K.
- Personal payments excluded: Personal payments from friends or family for gifts or shared expenses are not taxable income. Payment apps often allow you to tag these transactions correctly, preventing misreporting.
- Backup withholding and errors: If inaccurate tax identification numbers or Social Security Numbers are reported, payment settlement entities may apply backup withholding. Contact the issuer promptly to correct your tax information and request a corrected form.
Browse more tax form instructions and filing guides in our Forms Hub.
Step-by-Step (High Level)
Step 1: Review the form carefully
Check that your name, address, and tax identification number match your tax records. Ensure the gross payments listed match the total amount you actually received across different platforms for the same tax year.
Step 2: Gather your business records
Collect receipts, statements, and other records from online marketplaces and payment apps. Accurate records are essential to confirm that the reported income matches your data and includes only payments made for business purposes.
Step 3: Determine what type of income this represents
Review whether the form shows business income, rental income, or sales of personal items. The significance of this distinction lies in the fact that personal items that sell for less than their original purchase price typically do not result in taxable income.
Step 4: Calculate your actual taxable income
Use your business records to subtract refunds, fees, and other business expenses from the gross payments shown. This step ensures the IRS Form 1099-K information reported aligns with your true taxable income.
Step 5: Report the correct income on your tax return
Include all income from your Form 1099-K on your federal income tax return under the appropriate schedule. Maintain complete documentation in case the IRS requests verification of your reported payments and deductions.
Learn more about federal tax filing through our IRS Form Help Center.
Common Mistakes and How to Avoid Them
- Ignoring the form due to unexpected totals: Some taxpayers see high totals on their Form 1099-K because it includes refunds or fees that are not reflected in their actual income. To avoid mistakes, compare the reported total with your own records and make adjustments on your return.
- Failing to report income below the threshold: Even if you did not receive a form, the IRS expects you to report all income. Keep detailed records of every payment transaction across all online marketplaces and payment cards.
- Mixing business and personal payments: Treating personal transactions as business income can increase your tax liability. Maintaining separate accounts for business and personal payments helps ensure clarity and accurate reporting.
- Not contacting the issuer for incorrect information: If the information reported does not match your records, contact the payment settlement entity right away. Request a corrected form to prevent underreporting or duplicate income.
- Overlooking non-electronic income sources: The IRS Form 1099-K only reports payments made through electronic systems. Always include cash or check payments in your total business income to remain fully compliant.
- Failing to maintain accurate records: Keeping other documents, such as invoices, receipts, and expense logs, helps verify what portion of your payments qualifies as taxable business income. Organized documentation prevents future disputes.
Learn more about how to avoid business tax problems in our guide on How to File and Avoid Penalties.
What Happens After You File
After you file, the IRS matches the information reported on your tax return with the data from Form 1099-K and other tax forms. If discrepancies appear, the IRS may issue a CP2000 notice requesting clarification. Respond promptly with records showing correct income and expenses. Refunds are generally issued within 21 days if you e-file. Keep all documents, including 1099-K forms, receipts, and correspondence, for at least three years to support your tax filing.
FAQs
Do I need to include IRS Form 1099-K when I file my tax return?
You do not attach the form to your individual income tax return. The IRS already receives it electronically from payment settlement entities. Keep it with your tax records for reference.
What should I do if my 1099 K form shows personal payments?
If the form includes personal money transfers, contact the payment app or card processor to request a corrected form. Clearly tag personal payments to prevent future errors.
How does IRS Form 1099-K differ from Form 1099-NEC or other tax forms?
Form 1099-K reports payments from payment cards and third-party networks. Form 1099-NEC reports direct compensation paid by clients. Both help ensure all income is reported for tax purposes.
Do I owe taxes on personal items that I sell through an online marketplace?
If you sold personal items below their original purchase price, that money is not taxable income. Keep documentation that shows your costs to support your report.
What happens if my business receives income through multiple payment apps or online marketplaces?
Each payment app or online marketplace may issue separate 1099 K forms. Combine them to determine your total business income for the calendar year and report all payments received.
Can I correct errors on my 1099-K form after I have filed it?
Yes, if you receive a corrected form after submitting your return, file an amended return using Form 1040-X. Include documentation explaining the change.
What should I do if I receive payments through both a payment card and a third-party network?
Report payments from all sources on your tax return. Although information is reported separately, the IRS expects total income from every payment card and third-party network transaction to be included.
