Instructions for Form 1099-K Checklist, Tax Year 2020
Form 1099-K reports payment card transactions and third-party network transactions to the
Internal Revenue Service for the 2020 tax year under Section 6050W of the Internal Revenue
Code. During calendar year 2020, this form played a significant role in tracking taxable income as businesses relied more heavily on payment apps and electronic payments.
For the 2020 tax year, third-party settlement organizations applied a specific reporting threshold that required both a gross payment amount over $20,000 and more than 200 transactions.
Because payment settlement entities report gross amounts without deductions, the information reported on IRS Form 1099-K may differ from the net income shown on your tax return.
Form 1099-K Reporting Steps for the 2020 Tax Year
Step 1: Confirm Your Filing Obligation Under 2020 Thresholds
Before preparing Form 1099, you must determine whether Form 1099-K reporting applies to the transactions you processed during the calendar year. Third-party network transactions reported by a payment settlement entity triggered reporting only when the reporting threshold of $20,000 in gross payments and 200 transactions was exceeded during the 2020 tax year.
Responsibility for evaluating this threshold rested with the payment settlement entity rather than the individual merchant. Even so, you should understand how the threshold applies to your activity because the amounts reported on IRS Form 1099-K often affect how you report taxable income on Schedule C or other individual income tax returns.
Step 2: Identify All Reportable Payment Settlement Organizations
During the review process, you should identify every payment settlement entity that processed transactions on your behalf in 2020. These entities may include payment card networks, debit card processors, and third-party payment processors that facilitate transactions through online platforms or payment apps.
To ensure accuracy, include only transactions that meet the definitions of payment card transactions or third-party network transactions. Exclude transfers that fall outside these definitions, such as certain noncommercial payments, because those amounts do not belong on
Form 1099-K for the 2020 tax year.
Step 3: Gather Merchant Category Codes and Transaction Documentation
Merchant category codes apply to some filers and help classify the type of goods or services associated with reportable transactions. When an industry classification system exists, you must ensure that the merchant category code used on Form 1099-K accurately reflects the business activity conducted during the calendar year.
If you act as a third-party settlement organization or do not use an industry classification system for payees, you should leave the merchant category code box blank. Supporting transaction documentation should remain available to confirm the nature of each payment card or network transaction reported.
Step 4: Calculate Gross Transaction Amounts Without Reductions
Gross transaction amounts reported on IRS Form 1099-K must reflect the full value of each transaction as processed. The calculation excludes any reductions for processing fees, merchant discounts, refunded amounts, shipping charges, or cost basis adjustments associated with the transaction.
When reviewing settlement statements from third-party payment processors, you should total the gross amounts exactly as they appear. This approach ensures compliance with reporting rules and prevents discrepancies between amounts reported by the payment settlement entity and income figures later reported on your tax return.
Step 5: Report Monthly Gross Amounts in Boxes 5a Through 5l
In addition to the annual total reported in Box 1a, Form 1099-K requires a monthly breakdown of gross transaction amounts. Boxes 5a through 5l correspond to each month of the calendar year and must reflect activity from January through December 2020.
Accurate monthly reporting supports Internal Revenue Service matching processes and helps clarify timing differences in income recognition. You should reconcile monthly figures with payment settlement statements to confirm that each reporting period reflects the correct gross transaction amount.
Step 6: Complete Card-Not-Present Transactions in Designated Fields
Certain payment card transactions occur without a physical card, such as internet sales or telephone orders. When applicable, these card-not-present transactions belong in Box 1b of
Form 1099-K and represent a subset of payment card activity processed during the year.
If the form identifies the transactions as third-party network transactions, card-not-present amounts do not appear in Box 1b. Understanding this distinction helps explain why some electronic sales appear only in annual totals rather than in the card-not-present field.
Step 7: Enter Cardholder and Acquirer Account Numbers Correctly
The account number field supports accurate identification when multiple Forms 1099-K apply to the same payee. You must enter an account number when filing more than one form for a merchant, and the Internal Revenue Service encourages consistent use even when only one form applies.
Account numbers should match those shown on settlement statements provided by the payment settlement entity. Consistent identifiers reduce processing delays and help resolve inquiries if discrepancies arise during tax season or later compliance reviews.
Step 8: Verify 2020 State and Local Tax Reporting Requirements
State tax agencies may impose separate reporting requirements for payment settlement entities during the 2020 tax year. You should confirm whether your state accepts federal filing alone or requires additional copies of Form 1099-K for state-level compliance.
Although Boxes 6 through 8 support combined federal and state reporting, these fields are optional for Internal Revenue Service purposes. Completing them depends on your participation in state programs and whether paper filing applies to your specific reporting obligations.
Step 9: Compile Correction or Amended 1099-K Filings if Necessary
Errors discovered after issuing Forms 1099-K require prompt correction using established procedures. Corrected forms must clearly reference the original filing and identify the corrected information to maintain accurate records for both the payer and the recipient.
Timely corrections help prevent mismatches that may trigger audit letters or income verification notices. Maintaining organized records simplifies the correction process and supports consistent reporting across Forms 1099, Forms W-2, and related information returns.
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Step 10: Maintain Documentation Supporting Gross Transaction Amounts
You should retain all payment settlement statements and related documentation for the 2020 tax year. These records substantiate the gross transaction amounts reported and support your position if questions arise regarding taxable income or reporting accuracy.
Strong record-keeping practices also help reconcile Form 1099-K figures with amounts reported on Schedule C and other tax forms. Retaining documentation protects you during audits and ensures transparency in how payment card and third-party network transactions were reported.
If you’re missing tax documents or want to ensure the numbers you enter match IRS records, we can help.
