Form 1099-K 2017 Checklist
Purpose of Form 1099-K
Form 1099-K reports payment card transactions and third-party network transactions that meet the 2017 reporting threshold. Payment settlement entities must file this form when transactions exceed $20,000 in gross payments AND involve more than 200 transactions during the calendar year. The form enables the IRS to match reported income with merchant tax returns and verify accurate business income reporting.
Who Must File
Payment settlement entities include merchant acquiring entities, such as banks or organizations with contractual obligations to settle payment card transactions. Third-party settlement organizations represent the central organization that makes payments to participating payees for third-party network transactions. Electronic payment facilitators or other third parties may file on behalf of a PSE if a written agreement exists, though the original PSE retains liability for penalties under sections 6721 and 6722.
Filing Steps for 2017 Tax Year
Step 1: Verify Your Entity Classification
Identify whether you are filing as a payment settlement entity or as an electronic payment facilitator acting on behalf of a PSE. Check the appropriate box on Form 1099-K Copy A to indicate your entity type. Electronic payment facilitators must clearly identify themselves and include the PSE’s name and telephone number in the designated box at the bottom left of the form.
Step 2: Confirm Payee Identification Requirements
Obtain and verify the payee’s complete taxpayer identification number. Acceptable TINs include Social Security Numbers for individuals, Individual Taxpayer Identification Numbers for non-resident aliens, or Employer Identification Numbers for businesses. The TIN must match IRS records to prevent processing issues and avoid backup withholding requirements. Use Form W-9 to collect TIN information from domestic payees.
Step 3: Determine Reportable Transaction Types
Indicate whether you are reporting payment card transactions, third-party network transactions, or both. If a payee receives both types of payments, you must file separate Forms 1099-K for each transaction type. Select the appropriate transaction type box to specify the type of transaction you are reporting. Payment card transactions include credit cards, debit cards, and stored-value cards. Third-party network transactions involve payments through online platforms or apps that connect buyers with sellers.
Step 4: Calculate Box 1a Gross Amount
Enter the aggregate gross amount of all reportable payment card or third-party network transactions for calendar year 2017. Report the total dollar amount without any adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts, chargebacks, or any other deductions. The gross amount represents the total value processed before any reductions. Each transaction amount is determined on the date the transaction occurred.
Step 5: Complete Box 1b for Card Not Present Transactions
Report the gross amount of transactions where the payment card was not physically present during the transaction. This typically includes online sales, telephone orders, and mail-order catalog purchases where the card number was manually entered into the system. If you are reporting third-party network transactions, this box may remain blank, as it primarily applies to payment card transactions.
Step 6: Enter Merchant Category Code in Box 2
Provide the four-digit merchant category code used by the payment card industry to classify the payee’s business type. If you use an industry classification system other than MCCs, assign the code that most closely corresponds to the payee’s business description. If multiple MCCs apply to a single payee, you may either file separate forms for each MCC or file one form using the MCC that represents the largest portion of gross receipts. Third-party settlement organizations that do not use classification systems may leave this box blank.
Step 7: Report Number of Payment Transactions in Box 3
Enter the total number of payment transactions processed through the payment card or third-party network during the calendar year. Do not include refund transactions in this count. This field helps the IRS verify that reporting thresholds have been met and provides transaction volume data for compliance purposes. Count each separate payment transaction regardless of the dollar amount.
Step 8: Calculate Federal Income Tax Withheld for Box 4
Enter any backup withholding amounts if the payee failed to furnish a correct TIN or did not provide their TIN as required. Backup withholding applies to payment settlement entities when payees do not comply with TIN requirements. For third-party settlement organizations, backup withholding only applies when more than 200 transactions occur within the calendar year, regardless of the monetary threshold. Payment card transactions have no limiting thresholds for backup withholding requirements.
Step 9: Break Down Monthly Amounts in Boxes 5a Through 5l
Complete boxes 5a through 5l with the gross amount of reportable transactions for each month from January through December 2017. The sum of all monthly amounts must equal the total reported in Box 1a. Monthly breakdowns serve as an audit trail, helping to verify the accuracy of annual totals. Use the same gross amount calculation method for monthly figures as you used for the yearly total.
Step 10: Apply the De Minimis Exception for Third-Party Networks
Determine whether the de minimis threshold applies before filing. Third-party settlement organizations are not required to report transactions unless the gross amount exceeds $20,000 AND the number of transactions exceeds 200 for the calendar year. Both conditions must be met for reporting to be required. If neither threshold is reached, no Form 1099-K is needed. This exception does not apply to payment card transactions, which must be reported regardless of amount or transaction count.
Step 11: Complete State Information Boxes if Applicable
If you participate in the Combined Federal/State Filing Program or your state requires paper copies, complete boxes 6 through 8. Enter the abbreviated state name in box 6, your state identification number in box 7, and any state income tax withheld in box 8. These boxes accommodate reporting for up to two states by separating information with a dashed line. Use Copy 1 to provide information to state tax departments as required.
Step 12: File Copy A with the IRS by the Deadline
Submit Copy A of Form 1099-K along with Form 1096 as a transmittal document by February 28, 2018, if filing on paper. If you file electronically, the deadline extends to April 2, 2018. Electronic filing requires software that generates files in accordance with IRS Publication 1220 specifications. The IRS strongly encourages electronic filing and does not provide a fill-in form option for online submission.
Step 13: Furnish Copy B to Payee by Required Date
Provide Copy B to the payee by January 31, 2018. The statement must include the payee’s complete name, street address, city, state, and ZIP code. Include the filer’s contact information and telephone number that allows the payee to reach someone knowledgeable about the reported payments. If the filer is an electronic payment facilitator, include the PSE’s name and telephone number in the designated section.
Step 14: Truncate TIN on Payee Statements Only
You may truncate the payee’s taxpayer identification number on Copy B and other payee statements by showing only the last four digits. This protects the payee’s sensitive information while still providing sufficient identification. However, you must report the complete TIN on Copy A filed with the IRS. Never truncate the filer’s TIN on any copy of the form.
Step 15: Handle Corrections Using Proper Procedures
If you discover an error after filing, check the CORRECTED box at the top of a new Form 1099-K and enter the correct information. File the corrected Copy A with the IRS and furnish a corrected Copy B to the payee. Submit corrected forms with a separate Form 1096 marked as “Corrected” in the appropriate box. Address corrections promptly to minimize penalties and ensure payees receive accurate information for their tax returns.
Key 2017 Reporting Requirements
Payment settlement entities must report all transactions meeting the statutory threshold regardless of the payee’s business classification. Prior year safe harbors for certain merchant types were eliminated, requiring universal reporting for all qualifying transactions. The merchant category code field became increasingly important for IRS data analytics and business type verification.
The reporting threshold for third-party settlement organizations remains $20,000 in gross payments AND more than 200 transactions. Payment card transactions must be reported regardless of any threshold limits. Payments made through payment cards or third-party networks after December 31, 2010, that would otherwise be reportable under sections 6041 or 6041A are reported exclusively under section 6050W.
Foreign Payee Exceptions
Payment settlement entities may qualify for exceptions when paying foreign payees. If the PSE is a U.S. payer making payments to a participating payee with only a foreign address, filing may not be required if the PSE does not know or have reason to know that the payee is a U.S. person. The PSE must obtain documentation, such as Form W-8BEN, to establish foreign status.
For payments made outside the United States to offshore accounts, additional exceptions apply based on contractual obligation dates and documentation requirements. PSEs must file Form 1099-K if the payee has a U.S. residential or correspondence address, the PSE has standing instructions to direct payment to a U.S. bank account, the payee submits for payment in U.S. dollars, or the PSE knows the payee is a U.S. person.
Non-Reportable Transactions
Certain transactions are explicitly excluded from Form 1099-K reporting requirements. Cash withdrawals from automated teller machines using a payment card are not required to be reported. Cash advances or loans against the cardholder’s account do not require reporting to credit bureaus. Checks issued in connection with a payment card that merchants accept are excluded from this calculation. Any transaction where a payment card is accepted by a merchant who is related to the card issuer is not reportable.
Compliance and Penalties
Failure to file correct information returns by the deadline results in penalties under section 6721. Penalties vary based on the timing of the filing and the size of the business. Failure to furnish correct payee statements results in penalties under section 6722. Intentional disregard of filing requirements carries significantly higher penalties.
The IRS emphasizes TIN matching to reduce processing errors and improve compliance. Payment settlement entities should verify TINs before filing to avoid rejection and potential penalties. The IRS TIN Matching System allows payers to verify name and TIN combinations before submitting information returns.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
