What Form 1099-K (2016) Is For
IRS Form 1099-K (2016) reports gross payments received through payment cards and third-party network transactions within the same calendar year. It is issued by a payment settlement entity, such as a bank or a payment app, to a participating payee that accepts credit cards, debit cards, or other electronic payment methods. The form helps the IRS track income and ensure that taxpayers correctly report payments and other income on their federal income tax return.
The form shows the total amount paid before any refunds, processing fees, or costs are deducted. It is important for taxpayers and small businesses to maintain accurate records of all transactions and money received through online marketplaces or payment apps. These details determine taxable income and help ensure that federal income tax is reported correctly and paid.
When You’d Use Form 1099-K
A taxpayer or business uses Form 1099-K to reconcile gross payments reported by payment settlement entities with their own income records. The payer, such as a bank or payment app, must file this form with the IRS and provide a copy to the taxpayer each tax year if the reporting threshold is met. This includes payments made through credit cards, debit cards, or third-party services.
If the form contains incorrect information, such as an invalid tax identification number or employer identification number, the payer must issue a corrected version of the form. Taxpayers should review each form carefully before filing their tax return to avoid errors in federal income tax reporting. Consulting a tax professional can help ensure proper filing and prevent future withholding or reporting issues.
Key Rules or Details for 2016
For the 2016 tax year, payment card transactions were reportable without a minimum threshold, while third-party network transactions required both more than 200 transactions and gross payments over $20,000. Payment settlement entities had to report payments to the IRS and taxpayers for the same calendar year to ensure transparency and compliance with income tax laws.
Foreign or certain types of personal payments were generally not subject to reporting unless they were linked to a U.S. bank account or taxpayer identification number. The form reports gross pay, not profit, so refunds, deducted fees, and costs must be considered when calculating taxable income. Keeping accurate records helps taxpayers verify that all payments and taxes are correctly reported and paid.
For complete details on reporting, withholdings, and tax filings, see our guide for Information Returns & Reporting Forms.
Step-by-Step (High Level)
Step 1: Receive and Review the Form
Taxpayers typically receive the form by early February. They should verify that their name, address, taxpayer identification number, and total amount of payments are correct.
Step 2: Verify Gross Payments
Box 1a lists the total gross payments processed through all payment cards and third-party networks. This represents the total received before any deductions or refunds.
Step 3: Reconcile with Business Records
Compare the amounts shown on the form with your business income records to ensure accuracy. Ensure that the totals match the monthly payment processor statements and review any differences.
Step 4: Calculate Taxable Income
Subtract refunds, chargebacks, processing fees, and legitimate business expenses from the gross payments to determine taxable income. This ensures only net income is reported on the tax return.
Step 5: Report on the Tax Return
Use the data from Form 1099-K to complete the income section of the federal income tax return. Business owners typically report this income on Schedule C or corporate forms, while individuals may list it as other income. The form should not be attached to the return, but it must be kept for recordkeeping purposes.
Step 6: Correct Errors if Needed
If errors are found—such as an incorrect taxpayer identification number or employer identification number—request a corrected form. Filing with inaccurate data can trigger backup withholding or IRS inquiries.
Common Mistakes and How to Avoid Them
Taxpayers often make preventable mistakes when reporting payments from Form 1099-K. Understanding these issues helps ensure accurate reporting and compliance with relevant regulations.
- Reporting gross payments as taxable income: Form 1099-K lists total payments, not net profit. Deduct all business expenses, fees, and refunds before determining taxable income.
- Mixing business and personal payments: Payments for personal transactions—such as reimbursements or shared expenses—should not be reported as business income. Keep separate accounts for personal and business use.
- Providing incorrect identification information: Using an incorrect taxpayer identification number or Social Security number can result in mismatches with IRS records. Always verify your information with banks and payment processors.
- Overlooking multiple forms: If you receive numerous Forms 1099-K from different payment processors, review each one carefully to avoid double-counting income.
Accurate recordkeeping, verified identification details, and proper reconciliation of gross receipts help taxpayers avoid IRS notices and ensure correct income reporting.
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 a taxpayer files their tax return, the IRS uses the information from Form 1099-K to confirm that the reported income matches gross payments reported by payment settlement entities. If differences arise, the IRS may issue a notice requesting clarification or proof of deductions, such as refunds, fees, or business costs.
When a taxpayer fails to provide a correct Social Security number or employer identification number, backup withholding may be applied, and the federal income tax withheld will be reported on the form. Maintaining accurate bank statements and transaction records is crucial for verifying reported payments and ensuring that all forms, taxes, and filings are correct.
FAQs
What is IRS Form 1099-K (2016) used for?
IRS Form 1099-K (2016) reports gross payments from payment cards and third-party network transactions during the same calendar year. It helps taxpayers, businesses, and the IRS verify income, taxable income, and proper federal income tax reporting.
Who files or issues Form 1099-K?
A payment settlement entity, such as a bank or payment app, must file the form if a participating payee accepts credit cards, debit cards, or payment apps to process payments. The payer sends the form to both the taxpayer and the IRS.
What is the reporting threshold for Form 1099-K?
Payment settlement entities must report third-party network transactions when gross payments exceed $20,000, and there are more than 200 transactions in the same calendar year. Payment card transactions are generally reported regardless of the amount processed or paid.
What should I do if my Form 1099-K shows incorrect information?
If your form displays incorrect totals, refunds, or an incorrect tax identification number, contact the payer or payment settlement entity for a corrected form. Always verify payment details and maintain accurate records before filing your tax return.
Are personal payments or rent included on Form 1099-K?
Form 1099-K generally excludes personal payments, rent, or certain types of non-business transactions. It primarily reports gross payments from payment cards or online marketplaces related to sales, services, or other income earned during the tax year.
When should a taxpayer contact a tax professional about Form 1099-K?
A taxpayer should contact a tax professional if payments, fees, or figures differ from those in their business records. Guidance is helpful when filing a tax return, handling reporting thresholds, or clarifying how to report payments and deductible costs accurately.
For more resources on filing or understanding prior-year IRS forms, visit our Form Summaries and Guides Library or see our IRS assistance guide.
