What Form 1099-K Is For
IRS Form 1099-K (2018) is a tax form that reports total payment card and third-party network transactions made to a business owner or self-employed individual. It helps the IRS track business income and other income received through online marketplaces, payment apps, and payment cards. Payment settlement entities and third-party settlement organizations must issue this form annually when total payments exceed the reporting threshold. The form ensures accurate tax reporting for those who receive payments for goods or services.
When You’d Use Form 1099-K
You’d receive Form 1099-K if you accept payments through a payment app, online marketplace, or other third-party payment network that processes transactions on your behalf. Payment settlement entities are required to issue the form by January 31 of the year that follows the tax year in which you made the payment. If the form issued to you contains incorrect information, please contact the payment processor immediately to request a corrected version. If you need to amend your tax return because of inaccurate amounts, file IRS Form 1040-X. A tax professional can help ensure that all reportable payment transactions are correctly documented.
Key Rules or Details for 2018
- Reporting threshold requirements: For the 2018 tax year, third-party settlement organizations had to issue a Form 1099-K if payments processed exceeded $20,000 and involved more than 200 transactions.
- Payment card transactions: All payment card transactions, including debit cards and credit cards, were reportable without any minimum threshold. These totals include gross receipts from all card payments accepted by businesses or independent contractors.
- Gross amount reporting: The form reports the gross amount originally paid before any refunds, expenses, or processing fees. This figure represents total payments received during the calendar year.
- Tax Identification Number: Payment settlement entities use the payee’s Social Security Number or Employer Identification Number to report income, ensuring proper IRS matching.
- Foreign and state reporting: Payment settlement entities are required to report income to the IRS and, in many cases, to state taxing authorities. Foreign payees may have separate reporting obligations depending on tax treaties.
- Personal transactions: Payments received for selling individual items or personal property at a loss are not taxable income; however, they may still appear on the form if made through payment apps.
Browse more tax form instructions and filing guides in our Forms Hub.
Step-by-Step (High Level)
Step 1: Verify the information
Check that your name, address, Social Security Number, or Employer Identification Number is correct on the form. Ensure the gross amount matches your records for the payments you received during the tax year.
Step 2: Reconcile with your records
Compare the total payments listed on the form with your business records, including bank statements, invoices, and other documents, to identify refunds or personal payments that should not be included as taxable income.
Step 3: Determine your taxable income
Subtract refunds, processing fees, and other allowable business expenses from your gross receipts. The result is your net business income, which you report as earned income on your tax return.
Step 4: Report on the correct tax form
Sole proprietorships and self-employed individuals typically use Schedule C to report business income. If you earn rental income or other income, report it on Schedule E. Attach these schedules to your main IRS Form 1040.
Step 5: Keep complete documentation
Maintain copies of all Form 1099-K documents, payment processor reports, and business expense receipts. Good record-keeping helps if you need to explain the differences between the form’s gross amount and your actual taxable income.
Learn more about federal tax filing through our IRS Form Help Center.
Common Mistakes and How to Avoid Them
- Reporting the entire gross amount as income: Avoid reporting the total payments as taxable income. Subtract refunds, processing fees, and legitimate business expenses to calculate accurate business income.
- Ignoring personal payments: Some payment apps include personal payments in reportable payment transactions. Keep personal and business accounts separate to avoid confusion on your tax return.
- Not correcting errors: If the form issued to you lists inaccurate payments, contact the payment settlement entity promptly. Request a corrected form to prevent overreporting your annual income.
- Mixing business and personal items: When selling items, separate personal property sales from business transactions to avoid confusion. Report only business-related income on Schedule C to stay compliant with IRS rules.
- Missing multiple forms: If you receive payments from more than one online marketplace or payment app, you may get a form from each. Combine all forms to ensure your total income matches IRS records.
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 your tax return, the IRS compares your reported income with data from payment settlement entities. If discrepancies appear, you may receive a notice requesting clarification. Providing detailed documentation, such as payment summaries and other records, helps you resolve any issues quickly. If you discover later that your form was incorrect, you can file an amended tax return using Form 1040-X within three years of the original filing date.
FAQs
What if I get a Form 1099-K for personal transactions on a payment app?
If you receive a form reporting personal payments, such as reimbursements or money transfers, these are not taxable income. Contact the payment app provider and request a corrected form to exclude personal transactions from your account.
Why is my gross amount on the IRS Form 1099-K higher than my actual income?
The form shows the total payments processed, including refunds and fees. You should only report your net business income after deducting legitimate business expenses and refunds to determine taxable income accurately.
How do I report business income from multiple 1099-K forms?
If you receive multiple 1099-K forms from different payment settlement entities, add all gross receipts together. Report the combined total as business income on Schedule C or the relevant form on your tax return.
Do I need to attach the Form 1099-K to my tax return?
No, you do not need to attach Form 1099-K when you file. Keep it with your other tax forms and records for reference in case of IRS or state inquiries about reportable payment transactions.
What is the difference between Form 1099-K and other income forms like 1099-MISC?
Form 1099-K reports payment card and third-party network transactions, while Form 1099-MISC reports other types of income, such as rent or royalties. Always verify which form applies to your type of payments received.
Why did I receive a Form 1099-K payment card and a third-party network form, even though I earned little money?
Payment card transactions have no minimum threshold. You may get a Form 1099-K even for small amounts if your payment card processor or online marketplace reports all payments processed during the tax year.
How can a tax professional assist me in managing 1099-K forms?
A tax professional can ensure your gross receipts, business income, and other income are reported accurately. They also help reconcile differences, calculate expenses, and file amended returns if a form issued contains errors.
