Form 1099-K 2018 Checklist
Purpose
Form 1099-K reports gross payment card and third-party network transactions when both threshold requirements are met: aggregate payments exceeding $20,000 AND more than 200 transactions during the calendar year. This form helps the IRS track income from payment settlement entities, including credit card processors, debit card networks, and third-party settlement organizations such as payment apps and online marketplaces. Payment settlement entities must file this form for each participating payee who meets both reporting thresholds.
Who Must File
Payment Settlement Entities are required to file Form 1099-K. A PSE includes merchant acquiring entities, such as banks or organizations with contractual obligations to make payments for payment card transactions, and third-party settlement organizations that process payments through third-party networks. An electronic payment facilitator or other third-party entity that submits payment instructions on behalf of a PSE must file Form 1099-K, even if there is no direct arrangement with the participating payee.
Filing Steps
Step 1: Verify Your Filer Classification
Confirm whether you qualify as a Payment Settlement Entity, Electronic Payment Facilitator, or other third-party payer under IRS definitions. PSEs include merchant acquiring entities for payment card transactions and third-party settlement organizations for network transactions. If you contract with an electronic payment facilitator to make payments on your behalf, the facilitator assumes the filing responsibility.
Step 2: Obtain and Validate Taxpayer Identification Numbers
Collect valid Taxpayer Identification Numbers from all participating payees using Form W-9 or acceptable substitute forms. Use the IRS TIN Matching Program to validate TIN and name combinations before filing to reduce backup withholding notices. When filing Copy A with the IRS, report the complete untruncated SSN, ITIN, or EIN. You may truncate the TIN on Copy B and all other copies furnished to payees for identity theft protection.
Step 3: Apply the Dual Threshold Test
Determine whether each participating payee meets both reporting requirements. For third-party settlement organizations, you must report only when the gross payment amount exceeds $20,000, AND the number of transactions exceeds 200 for the calendar year. Both conditions must be satisfied. Payment card transactions do not have the 200-transaction threshold but must exceed $20,000 in gross payments. Track monthly transaction counts and amounts throughout the year to ensure accurate calculation of thresholds.
Step 4: Calculate Box 1 Gross Amount
Enter the total gross amount of reportable payment card or third-party network transactions for calendar year 2018 in Box 1a. Report the gross dollar amount without subtracting credits, cash equivalents, discount amounts, fees, or refunded amounts. Calculate each transaction amount on the date the transaction occurs. Do not make retroactive adjustments for chargebacks or refunds processed after December 31, 2018. Post-year-end reversals should be reported on the 2019 form when they are actually processed.
Step 5: Report Card-Not-Present Transactions
Complete Box 1b with the gross amount of transactions where the payment card was not physically present at the time of sale. This typically includes online purchases, telephone orders, and mail-order catalogue sales where card numbers were manually entered or keyed into terminals. Report the gross amount using the same methodology as Box 1a without deductions for adjustments or fees.
Step 6: Assign Merchant Category Codes
Enter the appropriate four-digit merchant category code in Box 2 for payment card transactions. Use the MCC that the payment card industry assigned to classify the payee’s business. If you use a different classification system, assign the MCC that most closely matches the payee’s business description. Third-party settlement organizations that do not use industry classification systems should leave Box 2 blank. When a payee has receipts under multiple MCCs, either file separate forms for each MCC or file one form using the MCC corresponding to the largest portion of receipts.
Step 7: Enter Transaction Count
Record the total number of payment transactions processed through the payment card or third-party network in Box 3. Count only actual payment transactions, excluding refund transactions. This count helps the IRS verify that third-party settlement organizations have correctly applied the 200-transaction threshold requirement.
Step 8: Report Backup Withholding
Enter any backup withholding amounts in Box 4 if you withheld federal income tax because the payee failed to furnish a valid TIN. For third-party settlement organizations, backup withholding applies only after a payee has received payments in more than 200 transactions within the calendar year, regardless of the dollar amount. Payment card transactions are subject to backup withholding without transaction count limitations when TIN requirements are not met.
Step 9: Complete Monthly Breakdown
Fill in Boxes 5a through 5l with the gross payment amounts for each month from January through December 2018. The sum of all monthly amounts must equal the total reported in Box 1a. Ensure that each monthly figure reflects the gross amount without deductions. This monthly breakdown provides the IRS with transaction timing information throughout the year.
Step 10: Prepare State Information
Use Boxes 6 through 8 for state tax reporting if you participate in the Combined Federal/State Filing Program or if your state requires paper copies of Form 1099-K. Enter the two-letter state abbreviation in Box 6, your state identification number in Box 7, and any state income tax withheld in Box 8. You may report information for up to two states on a single form using the sections separated by the dashed line.
Step 11: File Copy A with the IRS
Submit Copy A of Form 1099-K with Form 1096 as a transmittal summary by February 28, 2019, if filing on paper, or by April 1, 2019, if filing electronically—mail paper forms to the appropriate IRS Service Center based on your principal business location. Do not use forms printed from the IRS website for paper filing because they do not meet scanning specifications. Request an automatic 30-day extension by filing Form 8809 by the original due date if you need additional time.
Step 12: Furnish Copy B to Payees
Provide Copy B to each participating payee by January 31, 2019, for the 2018 tax year. Include the PSE name and telephone number on all copies so payees can contact you about disputed amounts. If you are an electronic payment facilitator filing on behalf of a PSE, include both your information and the PSE’s name and phone number in the designated box. You may furnish statements electronically if you follow the requirements in Treasury Regulations section 1.6050W-2.
Step 13: Handle Foreign Payee Exceptions
Review whether exceptions apply for payments to foreign payees or offshore accounts. You are not required to file Form 1099-K for participating payees with only foreign addresses if you obtain a valid Form W-8BEN, W-8ECI, or documentary evidence establishing non-U.S. status, and you do not know or have reason to know the payee is a U.S. person. File Form 1099-K if the payee has a U.S. address, you have instructions to direct payment to a U.S. bank account, or you know the payee is a U.S. person.
Step 14: Maintain Records and Verify Accuracy
Keep copies of all filed forms, payee statements, TIN documentation, and supporting transaction records for at least three years from the filing date. Review all forms for accuracy before submission to avoid penalties. Use the IRS TIN Matching System to catch errors before filing. Verify that monthly amounts reconcile to annual totals, transaction counts are accurate, and all required boxes are completed.
Step 15: Understand Penalty Amounts
Be aware that failure to file correct information returns or furnish correct payee statements results in penalties under IRC sections 6721 and 6722. For the 2018 tax year, penalties are $270 per form when filed more than 30 days late or with incorrect information, subject to annual maximum amounts. Lower penalties apply if you correct returns within 30 days of filing. Intentional disregard carries higher penalties of $550 per form with no maximum limit. Reasonable cause may provide penalty relief if you can demonstrate your failure was not due to willful neglect.
Key 2018 Compliance Requirements
Reporting Thresholds Unchanged
The reporting thresholds remain at $20,000 in gross payments AND more than 200 transactions for third-party settlement organizations. Both requirements must be met. Payment card transactions require only a $20,000 threshold, without a minimum transaction count. These thresholds have been consistent since Form 1099-K reporting began in 2011 for the 2011 tax year.
TIN Truncation Rules
You may truncate payee TINs on all copies furnished to payees, including Copy B, Copy 2, and Copy C. Display only the last four digits of the SSN, ITIN, ATIN, or EIN on payee statements for identity theft protection. Never truncate TINs on Copy A filed with the IRS or on Form 1096. Your own filer TIN must never be truncated on any form.
Payment Card vs Third-Party Networks
Understand the distinction between payment card transactions and third-party network transactions. Payment care encompasses credit cards, debit cards, and stored-value cards, including gift cards issued through agreements with payment networks.
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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.
