What Form 1099-K (2010) Is For
IRS Form 1099-K (2010) was introduced by the Internal Revenue Service for the 2010 tax year to improve transparency in payment reporting. It captures the total reportable payment transactions made through credit cards and third-party network transactions. The form ensures that taxpayers accurately report income from payment cards, payment apps, and online marketplaces.
This reporting requirement was established under Section 6050W of the Internal Revenue Code. It applies to any participating payee who received reportable payment transactions through a payment card or a third-party settlement organization during the same calendar year. The document records the gross amount of such payments before accounting for fees, refunds, or adjustments.
The responsibility to file falls on the payment settlement entity. This includes two main types of organizations:
- Merchant acquiring entities that process debit cards and credit card companies for businesses
- Third-party settlement organizations that facilitate payments between buyers and sellers, such as PayPal or other online marketplaces
When You’d Use Form 1099-K
A payment settlement entity must file Form 1099-K to report payments made during the prior calendar year. For the 2010 tax year, the form was due to the IRS by February 28, 2011 (paper) or March 31, 2011 (electronic). Each participating payee should have received a copy by January 31, 2011.
If a payment settlement entity fails to file or issues incorrect information, penalties may apply under Internal Revenue Code Sections 6721 and 6722. However, because 2010 was the first reporting year, the IRS offered transitional relief for entities that made a good-faith effort to comply.
When a payee received an incorrect form, they could file an amended tax return using Form 1040X. They would also report the corrected gross payments and provide documentation supporting any discrepancies.
Key Rules or Details for 2010
The 2010 reporting rules established specific thresholds for third-party network transactions. These thresholds determined when payments had to be reported to the Internal Revenue Service.
Payment Card Transactions
All credit and debit card transactions were reportable, regardless of amount or frequency.
Third-Party Network Transactions
Transactions were reportable only if both conditions were met:
- Gross payments exceeding $20,000 can be reported.
- The total number of transactions exceeded 200 during the same calendar year.
This rule meant that smaller sellers who received payments through other third parties, such as eBay or PayPal, were not subject to reporting unless both thresholds were exceeded. These thresholds were known as de minimis payment exemptions.
Foreign Payee Exception
Payment settlement entities were not required to file forms for payees with foreign addresses unless there was evidence that they were U.S. taxpayers.
Merchant Category Codes
Every filer had to include a four-digit code identifying the type of business. These codes helped categorize industries for more accurate tax compliance.
Transition Year Flexibility
Since 2010 was the first year this regulation took effect, the IRS acknowledged implementation challenges and offered leniency to good-faith filers.
For complete details on reporting, withholdings, and tax filings, see our guide for Information Returns & Reporting Forms.
Step-by-Step (High Level)
For Payment Settlement Entities
- Identify all reportable payment transactions processed during the calendar year 2010.
- Determine whether each payee meets the reporting threshold.
- Collect the taxpayer identification number, employer identification number, and business information for each payee.
- Calculate the total gross payments without subtracting refund transactions or processing fees.
- Complete the monthly breakdown of total reportable payment transactions on Form 1099-K.
- Submit Copy A to the Internal Revenue Service by the applicable filing deadline.
- Furnish Copy B to each participating payee by January 31, 2011.
For Recipients (Payees)
- Review the form received from the payment settlement entity for accuracy.
- Ensure that the total payments align with internal business records.
- Report gross receipts as income on the tax return, generally on Schedule C for self-employed individuals.
- Deduct business expenses, refunds, and chargebacks separately to determine taxable income.
- Retain supporting documentation for at least three years for audit purposes.
Common Mistakes and How to Avoid Them
Reporting Gross as Net Income
Some taxpayers mistakenly confuse the gross amount with taxable income. They should instead deduct business expenses and refunds when filing their tax return.
Failing to Report Income Due to No Form Received
Not receiving a 1099-K does not exempt a taxpayer from reporting income. All income, even from payment apps or digital payments below the threshold, must still be reported for tax purposes.
Duplicate Reporting on Multiple Forms
During the transition year, certain payments were reported on both Form 1099-MISC and Form 1099-K. Payees should verify that they are not double-counting the same income.
Incorrect Taxpayer Identification Number
An invalid or missing identification number may delay processing and result in penalties. Businesses should confirm that their taxpayer identification number and employer identification number are correct with the payment settlement entity.
Including Personal Payments
Personal payments, such as reimbursements or gifts made through payment apps, should not be reported on Form 1099-K. If they do, taxpayers should contact the issuer for a correction and maintain evidence of personal transactions.
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 forms are submitted, the Internal Revenue Service matches the 1099-K data with individual and business tax returns. If discrepancies arise, the IRS may issue a CP2000 notice requesting clarification or adjustment. Entities that failed to meet reporting obligations could face penalties.
For taxpayers, the IRS compares the gross receipts reported on the form with the income declared on the tax return. If the amounts align, no further action is required. If they do not, taxpayers may need to provide documentation supporting adjustments, such as refunds or fees deducted from the total payments.
Because 2010 was the first calendar year requiring Form 1099-K, the IRS prioritized education and compliance assistance over enforcement. The agency focused on helping businesses understand how to report payments and reconcile forms with their gross receipts.
FAQs
Do I owe taxes on the full amount listed on my Form 1099-K?
No, the form reports total gross payments. You can deduct legitimate business expenses, refunds, and fees to determine taxable income.
What if my form includes personal payments?
Contact your payment settlement entity to request a corrected form. Retain records distinguishing business and personal payments.
I did not receive a Form 1099-K. Do I still report my income?
Yes, you must report all income from your business, even if it falls below the reporting threshold or no form was issued.
What is the difference between Form 1099-K and Form 1099-MISC?
Form 1099-K reports payment card and third-party network transactions, while Form 1099-MISC reports other types of income, such as rent or royalties.
What if the totals on my form do not match my records?
Review your statements carefully. Differences may arise from fees, refunds, or variations in transaction timing. If necessary, contact your issuer for correction and include an explanation with your tax return.
Where do I report the income from Form 1099-K?
Self-employed individuals typically report income on Schedule C. Corporations include it on Form 1120, and other taxpayers may list it as other income if applicable.
