Form 1099-K 2020 Filing Checklist
Understanding Form 1099-K Requirements
Form 1099-K reports gross payment card and third-party network transactions for the 2020 tax year. Payment settlement entities must file this form when transactions exceed specific thresholds. This comprehensive checklist ensures accurate compliance with IRS requirements for the 2020 reporting period.
Filing Thresholds and Basic Requirements
Reporting Threshold Standards
For the 2020 tax year, payment settlement entities must report third-party network transactions only when both conditions are met: gross payments exceed $20,000, AND the number of transactions exceeds 200 during the calendar year. Payment card transactions have no minimum threshold and must be reported regardless of amount or transaction count. These thresholds remained unchanged for 2020 despite the pandemic, with no temporary relief or inflation adjustments applied.
Who Must File
Every payment settlement entity that submits instructions to transfer funds to a participating payee’s account must file Form 1099-K. This includes merchant acquiring entities, such as banks or organizations with contractual obligations to process payments for payment card transactions, as well as third-party settlement organizations that serve as central entities with contractual commitments to process payments for transactions on third-party networks.
If an electronic payment facilitator or other third party is contracted to make payments on behalf of a payment settlement entity, the facilitator must file Form 1099-K instead of the payment settlement entity, even if there is no direct arrangement with the participating payee.
Step-by-Step Filing Checklist
Step 1: Verify Your Filing Status
Confirm your entity classification by checking the appropriate box on the form. Identify whether you are a Payment Settlement Entity with direct contractual obligations to participating payees, or an Electronic Payment Facilitator or other third party filing on behalf of a payment settlement entity. Understanding your classification determines your filing obligations and potential liability for penalties under IRC sections 6721 and 6722.
Step 2: Collect Complete Payee Information
Gather accurate identification data for each participating payee, including the complete legal name as it appears on tax documents, the full street address, including apartment or suite numbers, city, state, and ZIP code, and the complete taxpayer identification number without truncation. Acceptable TINs include Social Security Numbers, Individual Taxpayer Identification Numbers, Employer Identification Numbers, or Adoption Taxpayer Identification Numbers. Verify all information against your records before filing to avoid backup withholding requirements and IRS penalties.
Step 3: Determine Reportable Transaction Types
Identify which transactions require reporting by checking the appropriate boxes on the form. Payment card transactions include all payments made through credit cards, debit cards, stored-value cards, and gift cards processed through your payment network. Third-party network transactions involve payments made through third-party settlement organizations, where providers of goods or services maintain accounts with a central organization.
File separate Forms 1099-K if reporting both payment card and third-party network transactions for the same payee, as mixed transaction types cannot be combined on a single form.
Step 4: Calculate Box 1a Gross Amount Correctly
Report the total dollar amount of reportable payment transactions without any adjustments. The gross amount means the total transaction value determined on the date of each transaction, excluding adjustments for credits, cash equivalents, discount amounts, processing fees, refunded amounts, chargebacks, or any other reductions. Do not reduce the reported quantity for business expenses, merchant fees, or transaction costs. For third-party network transactions, report only if both the $20,000 threshold and 200-transaction minimum are exceeded.
Step 5: Complete Box 1b for Card Not Present Transactions
Enter the gross amount of transactions where the payment card was not physically present at the time of the transaction, or the card number was manually entered into the terminal. This typically includes online sales processed through websites, telephone orders taken by phone and processed remotely, and catalog sales where customers order from printed materials.
Report the full gross amount without adjustments using the same calculation method as Box 1a. If reporting third-party network transactions, this box may be left blank, as it applies primarily to payment card transactions.
Step 6: Assign Merchant Category Code in Box 2
Enter the four-digit merchant category code used by the payment card industry to classify the payee’s business type. If your organization uses an industry classification system other than merchant category codes, assign the code that most closely corresponds to the payee’s primary business activity.
When a payee operates under multiple merchant category codes, either file separate Forms 1099-K for each code category, or file one form reporting total gross receipts with the code representing the largest portion of business. Third-party settlement organizations not using any industry classification system may leave this box blank.
Step 7: Report Total Number of Transactions in Box 3
Count and enter the aggregate number of payment transactions processed during the calendar year, excluding refund transactions from your count. Include all completed transactions that transferred funds to the payee’s account, regardless of transaction size.
For third-party settlement organizations, note that the 200-transaction threshold applies only to determine whether reporting is required. Once triggered, you must report the actual total number of all transactions, including those under the monetary threshold.
Step 8: Calculate and Report Backup Withholding in Box 4
Enter any federal income tax withheld through backup withholding when payees fail to provide valid taxpayer identification numbers. For third-party settlement organizations, backup withholding applies only after a payee receives payment in more than 200 transactions during the calendar year, regardless of the dollar amount.
Payment card transactions are subject to backup withholding, regardless of the transaction count or dollar threshold. Apply the current backup withholding rate as specified in IRS instructions to all qualifying payments. Report the total amount withheld for the entire year in this box.
Step 9: Complete Monthly Breakdown in Boxes 5a Through 5l
Enter the gross amount of reportable payment transactions for each calendar month in the corresponding boxes from January through December. Allocate amounts to the month when transactions actually occurred, not when funds were settled or transferred. Ensure the sum of all monthly amounts equals the total reported in Box 1a.
This monthly breakdown helps the IRS verify reported income against payee tax returns and identify potential discrepancies or underreporting. Use exact dollar amounts without rounding unless reporting in whole dollars consistently throughout the form.
Step 10: Assign Unique Account Numbers
Designate a unique account number for each payee when filing multiple Forms 1099-K for the same individual or entity. This requirement is mandatory if you maintain multiple accounts for a payee or report different transaction types separately.
The account number helps distinguish between different payment streams and facilitates IRS matching processes. Even when not required, the IRS encourages assigning account numbers to all Forms 1099-K to improve record accuracy and reduce potential processing errors.
Step 11: Complete State Information Boxes If Applicable
Use Boxes 6 through 8 only if you participate in the Combined Federal/State Filing Program or if your state requires paper copies of Form 1099-K. Enter the abbreviated state name in Box 6, your state identification number assigned by the state tax department in Box 7, and any state income tax withheld in Box 8.
Keep information for each state separated by the provided dash line if reporting for multiple states. These boxes are provided for convenience and are not required for IRS filing purposes.
Step 12: Prepare Filer Information Section
Complete the upper left section with your entity’s information, including the legal business name, complete street address with city, state, and ZIP code, and telephone number that connects callers to knowledgeable staff about reported payments.
Enter your Employer Identification Number in the designated box. If you are an electronic payment facilitator or other third party, also include the payment settlement entity’s name and telephone number in the section above the account number box at the bottom of the form.
Step 13: Prepare Copy A for IRS Filing
Submit Copy A of Form 1099-K to the IRS, accompanied by Form 1096 as a transmittal document if filing on paper. The paper filing deadline is March 1, 2021. If filing electronically, the due date extends to March 31, 2021, and Form 1096 is not required.
Do not print Copy A from the IRS website for submission, as the online version is not scannable and may result in penalties. Order official scannable forms from the IRS or file electronically through the Filing Information Returns Electronically system.
Step 14: Furnish Copy B to Payees by Deadline
Provide Copy B of Form 1099-K to each payee by February 1, 2021. You may furnish statements electronically if the payee consents, as per the regulations. When furnishing Copy B and other payee copies, you may truncate the payee’s taxpayer identification number to show only the last four digits for privacy protection, but you must report the complete untruncated number to the IRS on Copy A. Ensure payees receive their statements timely to allow proper tax return preparation.
Step 15: File Corrected Returns When Necessary
If you discover errors after filing, prepare a corrected Form 1099-K by checking the CORRECTED box at the top of the form and including complete corrected information. File the corrected form with the IRS and furnish a corrected statement to the affected payee. Include a reference to the original form filing to help the IRS properly match and update its records.
Corrected returns follow the same filing procedures and deadlines as original returns to minimize penalties and ensure accuracy.
Important 2020 Tax Year Considerations
Foreign Payee Exceptions
Payment settlement entities may qualify for filing exceptions when making payments to foreign payees under specific circumstances. For payments to accounts maintained outside the United States, no Form 1099-K is required if you obtain a valid Form W-8 or documentary evidence establishing foreign status, and you do not know or have reason to know the payee is a U.S. person.
However, you must file if the payee has a U.S. residential or correspondence address, you have standing instructions to direct payment to a U.S. bank account, or you know or have reason to know the payee is a U.S. person despite documentation.
Nonreportable Transactions
Certain transactions are specifically excluded from Form 1099-K reporting requirements. These include cash withdrawals at automated teller machines using payment cards, cash advances or loans against the cardholder’s account, even when processed through payment cards, checks issued in connection with payment cards that merchants or payees accept, and transactions where a merchant or payee related to the payment card issuer agrees with the card as payment. Understanding these exclusions prevents over-reporting and reduces unnecessary compliance burden.
Backup Withholding Requirements
Participating payees who fail to furnish valid taxpayer identification numbers in the required manner are subject to backup withholding on reportable payment transactions. The backup withholding requirement ensures tax compliance when proper identification is not provided.
Payment settlement entities must implement procedures to request taxpayer identification numbers, validate the information received, and apply backup withholding when validation fails or the payee refuses to provide the required information.
Record Retention and Compliance
Documentation Requirements
Maintain complete records of all Forms 1099-K filed with the IRS and furnished to payees for at least four years from the filing date. Keep supporting documentation, including transaction records, payee identification information, account agreements, and correspondence related to taxpayer identification number collection and validation.
These records are essential if the IRS questions your filing or if payees dispute reported amounts. Proper documentation protects your organization from penalties and provides evidence of good-faith compliance efforts.
Penalty Prevention
Avoid common penalties by filing accurate forms by the deadline, furnishing correct payee statements on time, and reporting complete and precise taxpayer identification numbers. Late filing penalties range from $50 to $280 per form depending on the extent of the late filing, with maximum annual penalties exceeding $3.5 million for large organizations.
Intentional disregard of filing requirements results in higher penalties of at least $570 per form, with no maximum limit. Implement quality control procedures to review forms before submission and verify that all required information is complete, accurate, and up-to-date.
Final Compliance Steps
Review each Form 1099-K for completeness and accuracy before filing. Verify that all required boxes contain appropriate information, mathematical calculations are correct, and payee identification matches your records. Ensure Form 1096 is properly completed with correct totals when filing paper returns.
Maintain backup copies of all filed forms and transmission records. Keep current with IRS updates and guidance by regularly checking the Form 1099-K page on IRS.gov for announcements, revised instructions, or new reporting requirements that may affect future filing years.
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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.
