What Form 1099-K Is For
IRS Form 1099-K (2020) reports payment card and third-party network transactions processed during the calendar year. It helps ensure that businesses and individuals accurately report payments and total gross receipts as taxable income on their tax returns. The Internal Revenue Service requires payment settlement entities, such as banks and payment apps, to send copies to both taxpayers and the IRS. This information confirms reported income for people who receive payments for goods, services, or rent through various platforms.
When You’d Use Form 1099-K
You’ll receive Form 1099-K if you process payments through a payment card, payment app, or online marketplace that meets the annual reporting threshold. Payment settlement entities must send the form by January 31 of the following year. If you discover errors, contact the issuer for correction before you file your tax return. Taxpayers filing late or amended returns should include accurate totals from all payment transactions to ensure consistency with IRS records.
Key Rules or Details for 2020
- Reporting thresholds: For payment card transactions, all amounts are reportable. For party network transactions, both total payments above $20,000 and transactions over $200 must be reported.
- Included payments: The form covers business income, rental income, and other income from customers who pay using credit or debit cards or payment apps.
- Excluded transactions: Personal payments and sales of personal items at a loss should not appear on Form 1099-K because they are not subject to taxes.
- Required information: Payment settlement entities must include your tax identification number or Social Security number, business name, and gross amount of all transactions.
- Recordkeeping: Businesses should store all related tax forms, payment records, and expenses to verify income and deductions during an audit or refund review.
Browse more tax form instructions and filing guides in our Forms Hub.
Step-by-Step (High Level)
Step 1: Receive and review your form
Verify that your name, account, and taxpayer identification number match your records. Check each reported gross amount to confirm accuracy before filing your tax return.
Step 2: Compare with your business records
Match the reported total payments with your accounting or bookkeeping records. The numbers may vary depending on processing fees, refunds, or chargebacks.
Step 3: Resolve discrepancies
If you notice errors, request a correction from the payment settlement entity. Keep other records, such as receipts and invoices, that accurately reflect the total amount received.
Step 4: Report on your tax return
Use Schedule C for a sole proprietorship or Schedule E for rental income. Report only taxable business income after deducting eligible expenses and processing fees.
Step 5: Keep documentation
Maintain copies of all forms, payment summaries, and gross receipts for a minimum of three years. These support your reported income if the Internal Revenue Service requests verification.
Learn more about federal tax filing through our IRS Form Help Center.
Common Mistakes and How to Avoid Them
- Reporting gross instead of net income: Taxpayers sometimes report the gross amount from Form 1099-K as income. To avoid this, deduct legitimate expenses before determining taxable profit.
- Including personal payments: Some people receive personal transactions through payment apps. To prevent mistakes, clearly mark personal transfers as “friends and family” instead of “goods and services.”
- Ignoring small transactions: Even if you receive income under the reporting threshold, it remains taxable. Always report all payments, regardless of whether you receive Form 1099-K.
- Failing to address incorrect forms: If your form lists inaccurate totals, promptly request a corrected version from the issuer. Keep proof of communication for your tax records.
- Forgetting business identification details: Always include your correct tax identification number or employer identification number to prevent mismatches or IRS notices.
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 you file, the IRS compares your tax return with information from payment settlement entities. If the gross receipts you report differ from the total payments shown on Form 1099-K, you may receive a notice requesting clarification. Maintain accurate payment information and supporting documents such as bank statements, other income records, and receipts. This ensures that any differences can be explained quickly and avoids unnecessary penalties.
FAQs
Do I need to attach IRS Form 1099-K (2020) to my tax return for the 2020 tax year?
No, you do not attach Form 1099-K. The IRS already has this information. Keep it for your records and report accurate totals on your return.
What should I do if my Form 1099-K payment card totals include personal payments?
Request a corrected form from the payment settlement entity. Maintain documentation that clearly distinguishes between personal and business or rental income payments.
How do party network transactions affect my business income reporting?
All business-related payments must be reported as taxable income. Even small payments from third-party network transactions count toward your annual income.
How does a payment app report other income received during the year?
Payment apps report the total number of payments processed for goods, services, or rent. The reported gross amount helps confirm that all income was correctly included on your tax forms.
Can online marketplace payments lead to multiple 1099-K forms?
Yes, if you use several platforms, each may issue a separate 1099-K. Combine these totals, but avoid double-counting when you report payments.
How are payment card and third-party network transactions treated differently on Form 1099?
Payment card transactions are always reportable, while third-party settlement organizations report only if both threshold conditions are met for the calendar year.
What if my other income on Form 1099-K doesn’t match my gross amount of business receipts?
Differences often arise due to refunds, fees, or timing discrepancies. Keep other records and verify that your reported profit matches actual business activity.
