What IRS Form 1099-K Is For
IRS Form 1099-K (2019) reports payment card and third-party network transactions processed through payment settlement entities like banks, credit card companies, or payment apps. These forms help ensure that all business income, rental income, and other income are properly reported on your tax return. The form includes the total gross amount of payments received before subtracting any fees or refunds. Both businesses and individuals that accept credit cards or receive payments through an online marketplace may obtain this form from a payment settlement entity.
When You’d Use IRS Form 1099-K
You’ll get a Form 1099-K if you received payments through payment cards or a third-party payment app during the 2019 tax year. Payment settlement entities must send these forms for individuals and businesses by January 31 of the calendar year following the year in which payments were made. If your form shows incorrect amounts or information, contact the filer listed to request a correction. If you cannot obtain a corrected form, report the amount shown and explain any differences on your tax return. Late or amended filers should still file as soon as possible to reduce penalties and pay taxes owed promptly.
Key Rules or Details for 2019
- Reporting threshold: Payment settlement entities must issue a Form 1099-K for all payment card transactions, regardless of total amount. For third-party network transactions, the reporting threshold applies only if payments exceed $20,000 and involve more than 200 transactions during the calendar year.
- Gross receipts reporting: The gross amount reported represents the total payments processed before subtracting refunds, processing fees, or other adjustments. Taxpayers must calculate their taxable income separately on their tax forms using actual business income and expenses.
- Taxpayer identification: Filers must include the payee’s tax identification number, employer identification number, or Social Security number on the form to ensure correct IRS matching. Mismatched information may cause backup withholding or IRS notices.
- Electronic filing rule: Entities that file 250 or more Forms 1099-K or other information returns must submit them electronically. Smaller filers may use paper filing if they do not exceed this limit.
- Recordkeeping requirement: Businesses and individuals should retain transaction records, refunds, and receipts for each payment app or online marketplace used. This documentation helps verify reported gross income and reconcile it with the tax return.
Browse more tax form instructions and filing guides in our Forms Hub.
Step-by-Step (High Level)
Step 1: Identify reporting responsibilities
Determine whether you are a merchant acquiring entity processing payment card transactions or a third-party settlement organization handling third-party network transactions. Each type has different filing responsibilities under the IRS rules.
Step 2: Gather payee information
Collect each payee’s legal name, address, and taxpayer identification number. Confirm accuracy using IRS TIN Matching to prevent errors when you file taxes and report payments made to others.
Step 3: Calculate gross payment totals
Add all payments received through payment cards, debit cards, or third-party payment apps. Use the total amount before any processing fees, chargebacks, or refunds to identify the reportable gross amount for the tax year.
Step 4: Apply the correct reporting threshold
Apply the $20,000 and 200-transaction threshold only to third-party network transactions. All payment card transactions must be reported, regardless of the amount or frequency, during the calendar year.
Step 5: Complete and file the forms
Use the correct IRS form and include all required information, such as total payments, payee data, and your business details. File electronically or by mail by the appropriate due date and furnish copies to recipients to help them file taxes accurately.
Learn more about federal tax filing through our IRS Form Help Center.
Common Mistakes and How to Avoid Them
- Confusing gross amount with taxable income: Many filers treat the gross amount on Form 1099-K as profit. Avoid this by tracking your business expenses, processing fees, and refunds separately when preparing your tax return.
- Ignoring incorrect forms: Some taxpayers skip filing when their 1099-K shows errors. Instead, file your tax return and include a note explaining the discrepancy to prevent IRS follow-up or delayed refunds.
- Using the wrong taxpayer ID: A mismatch between your tax identification number and your name may trigger backup withholding. Verify all account and payment information carefully before submission.
- Combining card and third-party payments: Reporting both payment card and third-party network transactions together can be confusing. Always file separate forms if you process both types of payments.
- Missing the electronic filing rule: Failing to file electronically when required may result in penalties. Review your total number of forms before tax season and use the IRS FIRE system if needed.
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 processes the forms and compares the reported gross income with what recipients show on their tax returns. If discrepancies exist, notices like CP2000 or CP2100 may be issued. Payees should review their accounts and provide records to support the correct figures. Maintaining accurate documentation of payments, refunds, and fees helps verify all reported amounts. Payment settlement entities must also keep filed copies for at least three years in case of future IRS reviews.
FAQs
Do I need to report income from IRS Form 1099-K (2019) if I sold personal items on an app or online marketplace?
Yes, you must report any income received for goods or services you provide. If you sold personal items at a loss, report the total payments, but show gains separately, and report losses for personal use items as allowed.
Why does my Form 1099-K show a higher gross amount than what I actually earned in business income?
Form 1099-K reports the gross receipts before fees, refunds, or chargebacks are deducted. Your actual taxable income will appear lower once you subtract these business-related costs on Schedule C.
How do I report other income or rental income shown on IRS Form 1099-K when I file taxes?
Report business income on Schedule C if you operate a sole proprietorship, or on Schedule E for rental income. Include all payments received through payment apps, debit cards, or credit cards.
What if I receive multiple 1099-K forms from different payment settlement entities or online marketplace platforms?
Combine all Forms 1099-K when you file your tax return. Each payment settlement entity reports its portion of your payments, so total them when calculating your annual income and taxes owed.
Can personal payments or money transfers through payment apps result in getting a Form 1099-K payment report?
Sometimes, yes. Payment apps may issue a form if your total payments meet the reporting threshold, even if they include personal transactions. Keep clear records to separate personal and business transactions.
What happens if I don’t report payments from IRS Form 1099-K or fail to file taxes on time?
If you don’t report, the IRS may assess penalties, additional taxes, and interest. Always include all reported gross income on your return and pay taxes owed promptly to avoid further issues.
How can a tax professional help me accurately handle Form 1099-K and third-party network transactions?
A qualified tax professional can review your transactions, help you figure out what income is taxable, and ensure you file accurate forms to avoid future IRS notices or audits.
