Form 1099-K: Merchant Card and Third Party Network Payments – 2023 Guide

What Form 1099-K Is For

Form 1099-K is an IRS information return that reports payments you received during the year from credit cards, debit cards, payment apps (like Venmo, PayPal, or Cash App), and online marketplaces (like eBay, Etsy, or Uber). Think of it as a receipt the IRS receives whenever you get paid through these electronic payment methods for selling goods or providing services.

The form is issued by payment settlement entities—companies that process your payments, such as your credit card processor, PayPal, Square, or any online marketplace where you conduct business. These payment processors send one copy to you and another to the IRS, creating a paper trail that helps ensure income is properly reported. IRS.gov

Important distinction: Form 1099-K doesn't create a tax liability by itself—it simply reports gross payment amounts. You might receive one whether you run a full-time business, have a side hustle, or sold some personal belongings online. The form reports the total value of transactions, but doesn't account for your costs, expenses, refunds, or fees. You'll need to use your own records to calculate your actual taxable income. IRS.gov

When You’d Use Form 1099-K (Late Filing/Amended Returns)

You don't file Form 1099-K yourself—payment processors issue it to you by January 31st following the tax year. However, you use the information on Form 1099-K when preparing your annual tax return (typically due April 15th). The form helps you report your business income accurately on schedules like Schedule C (for sole proprietors) or other appropriate forms depending on your business structure.

If you need to amend your return

Sometimes you might realize after filing that you didn't properly report income shown on a Form 1099-K, or you received a corrected form after filing. In these cases, you'll file Form 1040-X (Amended U.S. Individual Income Tax Return). Generally, you have three years from the original filing deadline to amend your return. While amending a return is completely legal and sometimes necessary, it does prompt the IRS to take a second look at your filing, so include clear explanations and supporting documentation. IRS.gov

If you received an incorrect Form 1099-K

Don't wait to file your taxes. The IRS advises taxpayers to file on time even if they can't get a corrected form from the issuer. You can report the incorrect amount and make an offsetting adjustment on Schedule 1 to show the correct income.

Key Rules for 2023

The reporting threshold for 2023 is critical to understand. After initially planning to lower the threshold to $600, the IRS provided transition relief. For 2023, payment apps and online marketplaces are only required to issue Form 1099-K if you received over $20,000 in payments AND had more than 200 transactions. This maintained the same threshold that had been in place since 2011. IRS.gov

However, there's an important exception: If you accept credit or debit cards directly (not through a payment app or marketplace), you'll receive Form 1099-K regardless of the amount or number of transactions—there's no minimum threshold for direct card payments.

Critical reminder: Even if you don't receive a Form 1099-K because you fell below the threshold, you must still report all income on your tax return. The reporting threshold only determines whether payment processors must send the form—it doesn't change your obligation to report all income, whether it's $100 or $100,000. IRS.gov

Personal payments are excluded: Money received from family and friends as gifts, birthday money, or reimbursements for shared expenses (like splitting a dinner bill or ride) should NOT be reported on Form 1099-K and aren't taxable income. When using payment apps, mark these as "personal" or "friends and family" transactions when possible.

Step-by-Step (High Level)

Step 1: Review the form carefully
When you receive your Form 1099-K by January 31st, check that your name, taxpayer identification number (TIN—the last four digits of your Social Security number or EIN), and the gross payment amount in Box 1a are correct. The gross amount should match your records of payments received through that processor. IRS.gov

Step 2: Gather your business records
Pull together all your records: receipts, bank statements, marketplace reports, and expense documentation. Remember, the gross amount on Form 1099-K doesn't account for fees, refunds, shipping costs, discounts, or your business expenses—you'll need to calculate these separately.

Step 3: Determine what type of income this represents
Are these payments from:

• Business sales or services? (Report on Schedule C)
• Rental property income? (Report on Schedule E)
• Personal items sold online? (May require Schedule 1 or Schedule D depending on gain/loss)

Step 4: Calculate your actual taxable income
Subtract legitimate business expenses, costs of goods sold, refunds issued, and processing fees from the gross amount. For personal items sold at a loss, you can zero out the income on Schedule 1 since losses on personal items aren't taxable.

Step 5: Report on your tax return
Include all income from Form 1099-K along with any other unreported income on the appropriate schedule when you file your Form 1040. Keep the Form 1099-K with your tax records—you don't mail it to the IRS (they already have a copy).

Common Mistakes and How to Avoid Them

Mistake 1: Ignoring Form 1099-K because amounts seem wrong
Many taxpayers receive forms showing higher amounts than their actual profit and assume it's an error. The gross amount on Form 1099-K includes refunds, shipping, and fees that aren't actually your income. Solution: Don't ignore the form. Report the gross amount and subtract allowable adjustments using proper documentation. IRS.gov

Mistake 2: Not reporting income because you didn't receive Form 1099-K
If your payments fell below the threshold, you might not receive a form—but you still must report the income. Solution: Track all income yourself using bank statements, payment app reports, and receipts. Report everything on your tax return regardless of whether you received a Form 1099-K.

Mistake 3: Treating personal item sales as business income
Selling your used sofa or clothing online for less than you paid isn't taxable business income. Solution: If you sold personal items at a loss, report the Form 1099-K amount on Schedule 1, line 8z, then offset it with an equal negative adjustment on line 24z, resulting in zero taxable income. If you sold at a gain, report it on Form 8949 and Schedule D as a capital gain. IRS.gov

Mistake 4: Failing to contact the issuer about obvious errors
If your Form 1099-K includes someone else's payments, duplicate transactions, or personal reimbursements, contact the payment processor immediately. Solution: Request a corrected Form 1099-K showing the correct amount or zero. Keep all correspondence. If you can't get a correction before the filing deadline, file anyway and document the discrepancy on Schedule 1.

Mistake 5: Reporting only Form 1099-K income and forgetting cash payments
Form 1099-K only captures electronic payments. Solution: If you also received cash, checks, cryptocurrency, or other non-reported payments, add those amounts to your income. The IRS requires reporting ALL income from all sources.

Mistake 6: Not keeping adequate records
Without documentation, you can't prove your expenses or demonstrate that personal item sales were at a loss. Solution: Maintain organized records including original purchase receipts, sale confirmations, fees paid, shipping costs, refunds issued, and business expenses throughout the year—not just when tax time arrives.

What Happens After You File

IRS matching process: The IRS electronically matches the Form 1099-K information they received from payment processors against what you reported on your tax return. If the amounts reasonably match (accounting for your legitimate expenses and adjustments), your return processes normally.

If amounts don't match: You might receive a CP2000 notice (Underreporter Inquiry) if the IRS computer system detects a significant discrepancy. This isn't an audit—it's the IRS asking you to explain the difference. Respond promptly with documentation showing your expenses, adjustments, or corrections. IRS.gov

Refund or payment: If you're due a refund, it typically arrives within 21 days of e-filing (longer if you filed by paper). If you owe taxes on your Form 1099-K income, payment is generally due April 15th. Consider making quarterly estimated tax payments if you'll owe more than $1,000 annually.

Record retention: Keep copies of all Form 1099-K forms, supporting documentation, receipts, and expense records for at least three years after filing (longer if you have substantial underreporting situations). You'll need these if the IRS has questions or if you need to amend your return.

Future quarterly payments: If you're self-employed or running a business generating Form 1099-K income, remember that taxes aren't withheld from these payments like they are from W-2 wages. You may need to make estimated quarterly tax payments (April 15, June 15, September 15, and January 15) to avoid underpayment penalties.

FAQs

Q1: Do I need to attach Form 1099-K to my tax return when I file?

No. You use Form 1099-K to help you calculate and report your income, but you don't mail it to the IRS with your return. The IRS already received a copy directly from the payment processor. Keep it with your personal tax records. IRS.gov

Q2: I received a Form 1099-K for $8,000, but only $5,000 is actually business income. The rest is personal reimbursements. What do I do?

Contact the payment processor immediately and request a corrected form. Mark personal payments as "personal" in your payment apps to prevent this in the future. If you can't get a correction before filing, report the full $8,000 on Schedule 1, line 8z, then subtract the $3,000 non-taxable portion on line 24z with a clear description. Keep documentation proving these were personal reimbursements. IRS.gov

Q3: What's the difference between Form 1099-K and Form 1099-NEC?

Form 1099-K reports payments made through payment cards and third-party networks (credit cards, PayPal, etc.). Form 1099-NEC reports nonemployee compensation paid directly by clients, typically $600 or more. You might receive both forms if you're paid different ways by different entities. Both must be reported on your tax return, but avoid double-counting if the same income appears on multiple forms.

Q4: I sold personal items on eBay at a loss. My old furniture cost $5,000 new but I only got $1,200. Do I owe taxes?

No. Losses on personal items aren't taxable income. Report the $1,200 Form 1099-K amount on Schedule 1, line 8z ("Form 1099-K Personal Item Sold at a Loss, $1,200"), then offset it on line 24z with the same amount, resulting in $0 taxable income. Alternatively, report it on Form 8949 showing your basis (what you paid) and sale price, demonstrating the loss. IRS.gov

Q5: I received my Form 1099-K in February—is that a problem?

Forms 1099-K should be sent by January 31st, but late forms happen. As long as you receive it before filing your tax return, there's no problem. If you already filed without knowing about this income, you'll need to file an amended return (Form 1040-X) to report it correctly.

Q6: My Form 1099-K shows $25,000, but I had $3,000 in refunds I issued to customers. How do I handle this?

The gross amount on Form 1099-K includes refunds you issued—it doesn't net them out. Report the full business income on Schedule C, then deduct the $3,000 in refunds as "returns and allowances" on Schedule C, line 2. Keep documentation of all refunds you issued. IRS.gov

Q7: What happens if I just ignore Form 1099-K and don't report it?

This is risky. The IRS receives the same Form 1099-K and will eventually notice the missing income—often months after you filed. You'll likely receive a CP2000 notice proposing additional tax, plus potential penalties and interest. It's always better to report correctly from the start, even if the amounts seem complicated or confusing.

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