What Form 1099-K Is For
IRS Form 1099-K reports payments made through payment cards and third-party network transactions such as PayPal, Stripe, or Square. This form helps ensure that all business income and other income received through these channels is properly recorded on your tax return. Payment settlement entities send the form to both you and the IRS, showing your gross amount of total payments during the calendar year. The form is essential for taxpayers who receive payments through credit cards, debit cards, or other third-party settlement organizations.
When You’d Use Form 1099-K
You would use Form 1099-K when you receive business income or other income through payment card transactions or party network transactions. It applies if your total payments met the 2017 reporting threshold of more than $20,000 and over 200 transactions. The payment settlement entity files the form and provides you with a copy for your tax information. If you receive a corrected or late 1099-K form, you may need to file taxes again using Form 1040-X. Always confirm the amounts with your other records before submitting your tax forms.
Key Rules or Details for 2017
- Reporting threshold: In 2017, third-party settlement organizations were required to report payments if total payments exceeded $20,000 and involved more than 200 transactions.
- Payment card transactions: All businesses that accept credit or debit cards are included. These transactions have no minimum threshold and must be reported regardless of volume.
- Gross amount reporting: The gross receipts shown on Form 1099-K represent the total payments before deducting processing fees, refunds, or other expenses.
- Non-reportable payments Include Personal payments, money transfers between friends, and the sale of personal items not related to business income, which are excluded from the total amount.
- Foreign and exempt accounts: Payment settlement entities are not required to report foreign payments unless linked to a U.S. tax identification number or Social Security number.
Browse more tax form instructions and filing guides in our Forms Hub.
Step-by-Step (High Level)
Step 1: Review your 1099-K forms carefully
Check that the gross amount reported matches your actual income. Confirm details like total payments, account identifiers, and taxpayer information before filing your tax return.
Step 2: Match your records with the 1099-K report
Compare your other records, such as invoices, payment apps, and online marketplace reports, to the total payments listed. Differences may arise from refunds or delayed transactions.
Step 3: Deduct business expenses properly
Use Schedule C if you are a sole proprietorship or Schedule E if you have rental income. Deduct expenses such as processing fees, refunds, or returned payments to calculate taxable income.
Step 4: File taxes with the correct information
When you file taxes, report your business income under gross receipts and ensure consistency between the IRS Form 1099-K and your documentation. Attach additional information only when necessary.
Step 5: Keep all documentation and supporting forms
Retain the 1099-K form, bank statements, receipts, and other records for at least three years. This is essential for verifying annual income or addressing IRS inquiries about your payments.
Learn more about federal tax filing through our IRS Form Help Center.
Common Mistakes and How to Avoid Them
- Treating the gross amount as final income: Many people receive Form 1099-K and mistakenly believe the gross amount is their taxable income. To avoid this mistake, deduct legitimate business expenses and report only the net amount.
- Ignoring the reporting threshold: Even if you fall below the threshold, all income is subject to taxes. Keep track of business payments throughout the tax year to ensure accurate reporting.
- Not reconciling with personal payments: If personal items or personal payments appear on the form, note them clearly. To avoid issues, explain these on Schedule 1 and maintain documentation.
- Overlooking refunds or chargebacks: Refunds reduce your actual business income. Track these carefully and report the correct amount on Schedule C or Schedule E, as applicable.
- Missing Tax Identification Numbers: Ensure your Social Security number or Employer Identification Number is correct. An error here can delay your tax return or cause the IRS to flag your account for further review.
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 taxes, the IRS uses an automated system to match your total payments reported on Form 1099-K with your reported income. If everything aligns, your return is accepted. If discrepancies are found, you may receive a notice requesting additional information. Keeping consistent records of your gross receipts, expenses, and tax forms ensures that you can quickly explain any discrepancies. Proper documentation supports accurate tax processing and prevents unnecessary penalties.
FAQs
Do I need to attach IRS Form 1099-K when I file taxes?
No, you do not attach IRS Form 1099-K to your tax return. The IRS already receives a copy directly from your payment settlement entity.
How do I report business income from Form 1099-K payment card and third-party network transactions?
Include the income on Schedule C for sole proprietorships or Schedule E for rental income. Report only the taxable income after deducting processing fees and other expenses.
What should I do if my online marketplace 1099-K includes personal payments or personal items?
Report all payments as shown, then subtract non-business transactions on Schedule 1. Keep records and explain that these were personal payments unrelated to business income.
Can a tax professional help if my 1099-K forms have incorrect totals?
Yes, a tax professional can help review your payment transactions, correct errors, and prepare an amended tax return if the IRS form shows an incorrect gross amount or total payments.
Why does my Form 1099 show other income I did not earn?
Sometimes, other third parties report payments incorrectly. Contact the payment processor to resolve the issue and document the correction before filing your taxes.
What if my Form 1099-K payment card transactions differ from my records?
Differences may come from processing delays or refunds. Verify all records and submit accurate income figures on your tax forms using your business account statements as proof.
Do I need to report income if I only receive payments for services or rent from people I know?
Yes, if you receive income from renting, providing services, or selling items, it is considered taxable income. Report it accurately on your tax return each tax season.
