Form 1099-K: Merchant Card and Third Party Network Payments (2022 Tax Year)
What Form 1099-K Is For
Form 1099-K is an information return that reports payments you received through credit cards, debit cards, payment apps (like PayPal, Venmo, or Cash App), and online marketplaces (like eBay, Etsy, or Uber) during the calendar year. Think of it as a receipt from payment processors showing how much money flowed through their systems to you. IRS.gov
This form isn't something you fill out yourself. Instead, payment settlement entities—the companies that process your payments—create it and send copies to both you and the IRS. These entities include merchant acquiring banks (for credit card transactions) and third party settlement organizations, or TPSOs (for payment apps and online marketplaces). The form shows the gross amount of payments you received, meaning the total before any fees, refunds, or adjustments were deducted. IRS.gov
The primary purpose of Form 1099-K is to help the IRS match income reported on tax returns with payments flowing through electronic networks. It's important to understand that receiving a 1099-K doesn't automatically mean you owe taxes—it simply reports payments. You'll use this information along with your business records to determine your actual taxable income after accounting for business expenses, cost of goods sold, and other deductions.
When You’d Use Form 1099-K (Late/Amended Filing)
As a payment recipient, you don't file Form 1099-K yourself—you receive it from payment processors. However, understanding the filing deadlines helps you know when to expect it and what to do if problems arise.
Standard Timeline
Payment processors must send Form 1099-K to you by January 31 of the year following the calendar year being reported. For 2022 transactions, you should have received your form by January 31, 2023. The same copy goes to the IRS, allowing them to verify the income you report on your tax return. IRS.gov
Corrected Forms
If your Form 1099-K contains errors—wrong amounts, incorrect taxpayer identification number, or includes personal transactions that shouldn't be there—you should immediately contact the payment processor that issued it. They can issue a corrected form. If you can't get a corrected version before your tax filing deadline, you'll need to report the discrepancy on Schedule 1 of Form 1040, showing both the incorrect amount and an offsetting adjustment. IRS.gov
Amended Returns
If you filed your tax return and later receive a 1099-K you didn't know about, or discover you reported income incorrectly based on a 1099-K, you may need to file an amended return using Form 1040-X. Remember that you must report all income regardless of whether you receive a 1099-K, so missing forms don't excuse underreporting.
Key Rules or Details for 2022
Payment Card Transactions (Credit/Debit Cards)
If customers paid you directly by credit card, debit card, or gift card, you received a Form 1099-K regardless of the dollar amount or number of transactions. There's no minimum threshold for payment card transactions. Even a single $10 credit card sale technically triggers reporting, though practically, payment processors focus on businesses with regular card acceptance. IRS.gov
Third Party Network Transactions (Payment Apps and Marketplaces)
For payments through PayPal, Venmo, Cash App, Etsy, eBay, and similar platforms, the 2022 threshold was both:
- More than $20,000 in gross payments, and
- More than 200 separate transactions
Both conditions had to be met. If you received $25,000 but only had 150 transactions, you wouldn't receive a 1099-K. Similarly, 300 transactions totaling only $15,000 wouldn't trigger the form. IRS.gov
Important Distinction—Personal vs. Business Payments
Form 1099-K should only report payments for goods sold or services provided. Money received from friends and family as gifts, birthday money, or reimbursements for shared expenses (like splitting dinner or rent with roommates) should not appear on Form 1099-K. Many payment apps let you mark transactions as "personal" to prevent them from being included in business reporting. IRS.gov
Reporting Income on Your Tax Return
Whether or not you receive a Form 1099-K, you must report all business income on your tax return. The form is just a reporting tool—your tax obligation exists based on the income itself, not on whether paperwork was issued. If you're self-employed, report 1099-K income on Schedule C. If you received it in error for personal items sold at a loss, you can use Schedule 1 to report it with an offsetting adjustment.
Step-by-Step (High Level)
For Recipients (Business Owners/Freelancers)
Step 1: Receive and Review Your Form 1099-K
By January 31 following the tax year, check your mail and email for Form 1099-K from any payment processors you used. Look at Box 1a, which shows the gross amount of reportable transactions. This is the total before any fees, refunds, chargebacks, or adjustments. Verify that the amount seems reasonable based on your records. Also check that your name, address, and taxpayer identification number are correct.
Step 2: Compare the Form to Your Records
Don't simply copy the Box 1a amount to your tax return. Instead, match it against your own business records—bank statements, accounting software, sales records, and payment processor statements. The 1099-K shows gross receipts, but you need to report net income after deducting business expenses, cost of goods sold, returns, and refunds.
Step 3: Identify Any Discrepancies or Errors
If the 1099-K includes personal transactions (money from family or reimbursements from friends), amounts for items you sold at a loss, or simply incorrect figures, contact the payment processor immediately to request a corrected form. Document your attempts to get corrections in case the IRS asks questions later.
Step 4: Report Income on Your Tax Return
If you're self-employed or a small business owner, report the income on Schedule C (Form 1040), Profit or Loss from Business. List your gross receipts and then deduct ordinary and necessary business expenses to arrive at your net profit. If you received a 1099-K in error for non-business transactions, report it on Schedule 1 (Form 1040), line 8z as "Other Income," then create an offsetting negative adjustment on line 24z to zero it out, with explanatory text like "Form 1099-K received in error." IRS.gov
Step 5: Keep Records
Maintain copies of all Forms 1099-K, your business records, and any correspondence about corrections for at least three years from the date you file your return. The IRS recommends keeping records longer if you have complex situations. These documents support the income and expenses you report and protect you during any IRS review.
Common Mistakes and How to Avoid Them
Mistake 1: Reporting Gross 1099-K Amount as Net Income
Many taxpayers mistakenly think they must pay taxes on the full amount shown in Box 1a. That figure is gross receipts before expenses. Avoid this by tracking all business expenses throughout the year and deducting them on Schedule C. Keep receipts for supplies, equipment, advertising, payment processing fees, shipping costs, and other ordinary business expenses.
Mistake 2: Ignoring Personal Transactions Included on the Form
Payment apps sometimes include personal payments in your 1099-K if they weren't properly marked as personal. For example, if your roommate sent you $500 monthly for rent through Venmo marked as a business payment, that $6,000 might appear on your form. Avoid this by always marking personal transactions correctly in the app. If personal amounts do appear, report them on Schedule 1 with an offsetting adjustment and keep documentation showing they weren't business income.
Mistake 3: Not Reporting Income Because No 1099-K Was Received
Just because you didn't receive a 1099-K doesn't mean you don't owe taxes. If you earned business income but stayed below the reporting thresholds, you still must report it. Avoid this mistake by maintaining your own detailed records and reporting all income regardless of whether you receive forms. The IRS cross-checks multiple data sources, and unreported income creates serious penalties.
Mistake 4: Incorrect Taxpayer Identification Number
If your Social Security Number or Employer Identification Number is wrong on Form 1099-K, the IRS computers won't match it to your tax return, creating problems. Verify your TIN is correct with all payment processors before year-end. Update it immediately if you change business structure (like incorporating). Wrong TINs can also trigger backup withholding, where 24% of future payments are held.
Mistake 5: Double-Counting Income
Some taxpayers receive both Form 1099-K and Form 1099-NEC for the same work, leading them to report the same income twice. This happens when a client pays through a platform that issues 1099-K, and also issues their own 1099-NEC without realizing the platform already reported it. Avoid this by carefully reconciling all 1099 forms against your actual deposits and making adjustments when you identify duplication. IRS.gov
What Happens After You File
IRS Matching Process
After you file your tax return, the IRS computers automatically match Forms 1099-K submitted by payment processors against the income you reported. This matching typically occurs months after you file, sometimes taking until the following year. If the IRS finds discrepancies—for example, you reported $15,000 in income but received a 1099-K showing $20,000—they'll send you a notice asking for explanation. IRS.gov
CP2000 Notices
The most common notice for 1099-K discrepancies is the CP2000, "Notice of Underreported Income." This isn't technically an audit, but rather a proposed adjustment. The notice shows what the IRS believes you should have reported and calculates additional tax, interest, and potential penalties. You have the right to respond with documentation showing why the adjustment is wrong—for example, that the 1099-K included refunds or personal transactions, or that you already reported the income elsewhere on your return.
Responding to IRS Questions
If you receive any IRS notice about Form 1099-K, respond by the deadline shown (usually 30 days). Provide clear documentation: copies of your tax return showing where you reported the income, business records supporting your expense deductions, correspondence with payment processors about corrections, and explanations of any adjustments you made. Most discrepancies resolve through correspondence without requiring an in-person audit.
State Tax Implications
Many states use federal tax information as the basis for state taxes. If you receive a federal notice about 1099-K discrepancies, check whether your state return also needs correction. Some states have their own 1099-K reporting requirements with different thresholds, so you might receive state notices even when federal reporting matches correctly.
FAQs
Q1: Do I need to pay taxes on money I received from friends and family through payment apps?
No. Gifts, personal reimbursements, and money from family aren't taxable income. However, if these appear on Form 1099-K because they weren't marked as personal in the payment app, you'll need to report them on Schedule 1 with an offsetting adjustment to show they're not taxable. Always mark personal transactions correctly in payment apps to avoid this issue. IRS.gov
Q2: I sold personal items like furniture and clothes through online platforms. Do I owe taxes on the amounts shown on my 1099-K?
Generally, no. When you sell personal belongings for less than what you originally paid for them, there's no taxable gain. Most people sell used items at a loss. However, if you made a profit—for example, buying a collectible for $50 and selling it for $500—that gain is taxable. If your 1099-K includes sales of personal items sold at a loss, report the 1099-K amount on Schedule 1, then enter a negative adjustment showing the basis (what you paid for the items), so there's no net income.
Q3: The amount on my Form 1099-K doesn't match my actual income because it includes refunds and chargebacks. What do I do?
Form 1099-K reports gross amounts before adjustments. Your actual income is net of refunds, returns, and chargebacks. Calculate your true net income using your payment processor's detailed statements, which break down the gross amounts and adjustments. Report your actual net income on your tax return and keep the detailed statements as documentation. The IRS expects you to report actual income, not the gross 1099-K figure. IRS.gov
Q4: Can I deduct the processing fees that PayPal, Stripe, or other payment processors charged me?
Yes. Payment processing fees are ordinary and necessary business expenses. Track these fees throughout the year (most processors provide annual summaries) and deduct them on Schedule C as "Other Expenses" or under a category like "Merchant Fees" or "Payment Processing Fees." These reduce your taxable income.
Q5: I received a 1099-K but I'm not self-employed—I just occasionally sell things online as a hobby. How do I report this?
If you're engaged in a hobby rather than a business, the tax treatment differs. For 2022, hobby income is reported as "Other Income" on Schedule 1 (Form 1040), line 8. Unfortunately, under current tax law, hobby expenses are not deductible. The IRS distinguishes hobbies from businesses based on factors like whether you operate in a businesslike manner, spend considerable time on the activity, depend on income from it, and have a profit motive. If you're regularly selling items intending to make profit, you may actually be running a business and should report on Schedule C where you can deduct expenses.
Q6: What if I never received a Form 1099-K but I know I should have?
Contact the payment processor to request your form. Under IRS rules, they had to send it by January 31, but sometimes forms get lost or sent to old addresses. While you wait for the form, use your payment processor's online account or year-end statements to determine your gross receipts. You must report all income whether or not you receive the form. If tax filing deadlines approach and you still don't have it, file your return based on your records. You can always amend later if the 1099-K shows different amounts.
Q7: The reporting thresholds keep changing. What should I expect for future years?
Congress and the IRS have adjusted 1099-K thresholds multiple times. For 2022 and 2023, the threshold remained at $20,000 and 200 transactions. Starting 2024, the IRS implemented a phased approach with lower thresholds. Always check IRS.gov for the most current information about reporting requirements. Regardless of thresholds, remember that your obligation to report all business income never changes—only whether payment processors must send you a form.
Key Takeaway
Form 1099-K is an information reporting tool, not a tax bill. It helps you and the IRS track electronic payments, but what matters for taxes is your actual net income after legitimate business expenses. Keep detailed records throughout the year, report all income whether or not you receive forms, and don't hesitate to seek professional tax help if your situation becomes complex. For the most current information and guidance, always refer to IRS.gov.
