Form 1099-K: Merchant Card and Third Party Network Payments (2019)

What Form 1099-K Is For

Form 1099-K is an information return used by payment settlement entities (PSEs) to report payment card transactions and third-party network payments to both the Internal Revenue Service and payees. If you accepted credit card payments or received payments through third-party networks like PayPal, Venmo, or other payment processors during 2019, you may receive this form.

The form serves two primary purposes: it helps the IRS verify that businesses and individuals properly report their income, and it provides you with a summary of gross payments you received throughout the year. The PSE—which includes merchant acquiring banks (for credit card transactions) or third-party settlement organizations (for payment app transactions)—is responsible for issuing this form.

It’s crucial to understand that Form 1099-K reports gross payment amounts, meaning the total dollar value of transactions before any deductions for fees, refunds, chargebacks, or other adjustments. This is often higher than your actual income, so you’ll need to account for these differences when preparing your tax return. IRS.gov

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

For Payees (Recipients)

You should receive Copy B of Form 1099-K by January 31, 2020 (for tax year 2019). If the form contains errors, contact the payment settlement entity or electronic payment facilitator listed in the upper left corner immediately. They are responsible for issuing corrected forms, not you.

If you cannot obtain a corrected form and believe the reported amount is incorrect, you must still report the transaction on your tax return. Report the income on Schedule 1 (Form 1040) and include a statement explaining the discrepancy to avoid potential IRS notices.

For Filers (PSEs and Payment Processors)

The original filing deadline for Form 1099-K was February 28, 2020 for paper filers and March 31, 2020 for electronic filers. If you missed this deadline, you should file as soon as possible to minimize penalties.

To file a corrected Form 1099-K, mark the “CORRECTED” box at the top of the form and enter the correct information. You must file corrected returns with the IRS and furnish corrected statements to payees. Corrected returns should be filed as soon as the error is discovered, regardless of how much time has passed since the original deadline. IRS.gov

Late filers may request a 30-day extension using Form 8809, but this must be filed by the original due date. Under certain hardship conditions, an additional 30-day extension may be granted. Note that no automatic extensions are available for certain forms reporting nonemployee compensation.

Key Rules or Details for 2019

Reporting Thresholds

For payment card transactions (credit cards, debit cards, stored-value cards): PSEs must report all payment card transactions with no minimum threshold. If you accepted even one credit card payment, it should be reported on Form 1099-K.

For third-party network transactions (PayPal, Venmo, other payment apps): PSEs must file Form 1099-K only if both of the following conditions are met for the calendar year:

• Gross payments exceed $20,000, AND
• The total number of transactions exceeds 200

If either threshold is not met, the third-party settlement organization is not required to issue Form 1099-K for that year. IRS.gov

What Gets Reported

Box 1a shows the gross amount of all reportable payment card and third-party network transactions. This amount does not account for credits, cash equivalents, discount amounts, fees, refunded amounts, or any other adjustments. You are responsible for calculating your actual net income by subtracting legitimate business expenses.

Box 1b reports “Card Not Present” transactions—typically online, phone, or catalog sales where the physical card was not present at the point of sale.

Electronic Filing Requirements

Filers submitting 250 or more information returns of any single type must file electronically. This threshold applies separately to each form type. For example, if you file 200 Forms 1099-K and 200 Forms 1099-MISC, you may file on paper since neither type reaches 250. IRS.gov

Step-by-Step (High Level)

For Payment Settlement Entities and Processors

Step 1: Identify Your Reporting Obligations

Determine if you are a merchant acquiring entity (processing payment card transactions) or a third-party settlement organization (processing third-party network transactions). Each requires separate reporting, even for the same payee.

Step 2: Gather Payee Information

Collect taxpayer identification numbers (TINs), names, and addresses for all participating payees. Use IRS TIN Matching services before filing to reduce errors and backup withholding notices.

Step 3: Calculate Gross Payment Amounts

Total all reportable payment transactions for each payee for the calendar year. Remember to use the transaction date for determining dollar amounts. Do not subtract fees, refunds, or other adjustments.

Step 4: Apply De Minimis Rules

For third-party network transactions only, verify that both the $20,000 and 200-transaction thresholds are met before filing.

Step 5: Complete the Forms

Fill out Form 1099-K for each qualifying payee, including:

• Filer’s name, address, and TIN in the designated boxes
• Payee’s name, address, and TIN
• Gross payment amounts in Box 1a
• Card Not Present transaction amounts in Box 1b (if applicable)
• Number of payment transactions in Box 3
• Merchant Category Code in Box 2 (if using payment card industry classification)
• Monthly breakdowns in Boxes 5a through 5l

Step 6: File with the IRS

Submit Copy A of all Forms 1099-K with Form 1096 (transmittal document) by February 28, 2020 (paper) or March 31, 2020 (electronic). Use the appropriate IRS Service Center based on your principal business location.

Step 7: Furnish Statements to Payees

Provide Copy B to each payee by January 31, 2020. Statements may be furnished electronically if recipients consent under IRS regulations.

For Payees (Recipients)

Step 1: Receive and Review

Carefully review Form 1099-K when received. Verify that your identifying information and the reported amounts are correct.

Step 2: Reconcile with Your Records

Compare the gross amount in Box 1a with your business records. Remember, this is a gross figure before expenses, fees, refunds, and adjustments.

Step 3: Prepare Your Tax Return

Report the income from Form 1099-K on the appropriate schedule (typically Schedule C for sole proprietors). Deduct allowable business expenses, including payment processing fees, refunds issued, and chargebacks.

Step 4: Address Discrepancies

If you disagree with the reported amount and cannot obtain a corrected form, include the amount on your return with an explanation of the discrepancy to avoid IRS inquiries. IRS.gov

Common Mistakes and How to Avoid Them

Mistake #1: Confusing Gross Receipts with Net Income

Many taxpayers mistakenly believe the amount in Box 1a represents their taxable income. The form reports gross payment amounts—the total value of all transactions before subtracting fees, refunds, returns, or business expenses.

How to avoid: Maintain detailed records of all payment processing fees, chargebacks, refunds, and business expenses. These can be deducted on your tax return to arrive at your actual taxable income.

Mistake #2: Not Reporting Because the Amount Seems Wrong

Some recipients ignore Form 1099-K because they believe the reported amount is too high or doesn’t match their records. The IRS receives a copy of every Form 1099-K and will notice if you don’t report the income.

How to avoid: Always report income from Form 1099-K, even if you believe it’s incorrect. You can reconcile differences on your tax return by properly accounting for expenses and adjustments, accompanied by documentation.

Mistake #3: Incorrect TIN or Name Matching

Filing forms with incorrect or mismatched taxpayer identification numbers leads to backup withholding notices and penalties. This is one of the most common errors.

How to avoid: Use the IRS TIN Matching system before filing to verify that the name and TIN combinations are correct. Request Form W-9 from all payees to ensure accurate information. IRS.gov

Mistake #4: Mixing Payment Card and Third-Party Network Transactions

PSEs sometimes combine different transaction types on a single form. IRS rules require separate reporting for payment card transactions and third-party network transactions.

How to avoid: File separate Forms 1099-K for each transaction type, even for the same payee. Check the appropriate box indicating whether you’re reporting payment card or third-party network transactions.

Mistake #5: Not Applying the Correct Reporting Threshold

The $20,000/200-transaction threshold applies only to third-party network transactions, not payment card transactions. Some filers incorrectly apply this threshold to all transactions.

How to avoid: Remember that payment card transactions must be reported regardless of amount or volume. Apply the de minimis threshold only to third-party payment networks.

Mistake #6: Missing the Electronic Filing Requirement

Filers who submit 250 or more returns of a single type on paper face penalties, even if they were unaware of the electronic filing requirement.

How to avoid: Count your returns by form type early in the filing season. If you meet the 250-return threshold, arrange for electronic filing through the IRS FIRE System well before the deadline.

What Happens After You File

For Filers

After filing, the IRS processes your Forms 1099-K through its Information Reporting Program. The reported amounts are matched against payees’ tax returns. If the IRS processing systems successfully accept your returns, you generally won’t receive immediate confirmation unless you file electronically through the FIRE System, which provides acknowledgment files.

If there are problems with your filing—such as TIN mismatches, formatting errors, or missing required information—you may receive notices including:

• CP2100/CP2100A notices: TIN/name combination errors requiring backup withholding
• Penalty notices: For late filing, failure to file, or incorrect information under IRC Sections 6721 and 6722

Maintain copies of all filed Forms 1099-K and Form 1096 for at least three years in case of IRS inquiries or audits.

For Payees

After receiving Form 1099-K, you must report the income on your tax return. The IRS computer systems automatically match the amounts reported on Forms 1099-K against the income reported on your individual or business tax return.

If the IRS identifies a discrepancy between what’s reported on Form 1099-K and what you report on your return, you may receive:

• CP2000 Notice: Proposed changes to your tax return due to underreported income
• Audit notices: Requesting documentation to substantiate your reported income and expenses

If you receive a notice, respond promptly with documentation explaining any differences between the Form 1099-K amount and your reported income. Legitimate adjustments (fees, refunds, chargebacks) supported by records are generally accepted. IRS.gov

FAQs

1. Do I need to report the Form 1099-K amount as income even if I don’t have a business?

Yes, if you received Form 1099-K for goods or services you provided, you generally must report it as income. However, certain transactions are not taxable, such as gifts, reimbursements for shared expenses (like splitting a dinner bill), or personal transfers. If your Form 1099-K includes non-taxable amounts, report the full amount and then subtract the non-taxable portions with appropriate documentation and explanation on your return.

2. The amount on my Form 1099-K is much higher than my actual income. What do I do?

This is common because Box 1a reports gross receipts, not net income. You’re entitled to deduct ordinary and necessary business expenses, including payment processing fees, cost of goods sold, refunds, chargebacks, and other legitimate business expenses. Report the gross amount as income and claim these deductions on the appropriate schedule (usually Schedule C for sole proprietors).

3. I received multiple Forms 1099-K from different payment processors. How do I report them?

Report each Form 1099-K on your tax return. If you’re a sole proprietor filing Schedule C, you’ll report the combined income from all payment processors. Keep each form for your records and ensure your reported income accounts for all sources.

4. What’s the difference between Form 1099-MISC and Form 1099-K?

Form 1099-MISC reports various types of income including nonemployee compensation, rent, and other miscellaneous payments made directly by a business to you. Form 1099-K specifically reports payments processed through payment cards or third-party networks. For payments made via credit card or payment apps after 2010, the payer uses Form 1099-K instead of Form 1099-MISC, regardless of the amount. IRS.gov

5. I sold personal items at a loss through a payment app. Do I owe taxes on the Form 1099-K amount?

Generally, selling personal items at a loss is not taxable income. However, you must still address the Form 1099-K on your tax return since the IRS received a copy. Report the amount and then document that the transactions represented sales of personal property at a loss. If you sold collectibles, art, or investment property, different rules may apply, and you should consult a tax professional.

6. Can Form 1099-K include non-business transactions like friends paying me back for concert tickets?

Yes, unfortunately payment apps sometimes report reimbursements and personal transfers. For 2019, the reporting threshold for third-party networks was $20,000 and 200 transactions, so most casual users didn’t receive forms. If you did receive a Form 1099-K that includes personal reimbursements, you need to report it on your tax return but can exclude the non-taxable personal transfers with proper documentation.

7. What penalties can I face if I don’t report my Form 1099-K?

If you fail to report income shown on Form 1099-K, the IRS may assess additional tax, plus penalties and interest. Penalties for substantial understatement of income can be 20% of the underpayment. If the IRS determines the failure was fraudulent, penalties can reach 75%. Additionally, you’ll owe interest calculated from the original due date of the return. The best approach is to report all Form 1099-K income and properly document any adjustments or expenses.

Additional Resources

For more detailed information about Form 1099-K and your reporting obligations, visit:

• Form 1099-K Instructions (2019)
• General Instructions for Certain Information Returns (2019)
• IRS Form 1099-K Information Page

Note: This guide is based on 2019 tax law and Form 1099-K reporting requirements. Subsequent years have seen changes to reporting thresholds, particularly for third-party network transactions. Always refer to current year instructions when filing your taxes or consult with a qualified tax professional for personalized advice.

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