A 1099-K form may be heading your way if you own a business, do gig work, freelance or sell goods online. Form 1099-K reports digital payment transactions from credit, debit and gift cards, as well as companies that "settle" payments between you and your clients. This could include payment apps like Venmo or PayPal, online marketplaces like eBay or work sharing platforms like Uber or Upwork.
Form 1099-K helps business owners report card transactions and third-party processor payments accurately on their taxes. It also helps the IRS track your income, to make sure all sales are reported on your taxes. To learn more about Form 1099-K, why you might (or might not) receive one and how to report it on your taxes, keep reading.
What Is Form 1099-K?
Form 1099-K reports business payments received from credit and debit card processors and "payment settlement entities" or PSEs. A PSE is a digital payment company like PayPal or Venmo, or a website like eBay, Etsy or Upwork that "settles" transactions between parties.
PSEs will issue 1099-Ks for business transactions only. You may receive a 1099-K form if you fall into one of the following categories:
- You have a business (not standard or personal) account with PayPal, Venmo, Cash App or another payment company and have at least $600 in transactions for the year.
- You have $600 or more in transactions that were marked "for goods and services" on your personal payment account.
- Your customers pay you with credit, debit or stored value (gift) cards.
- You earned money through a site that pays you on a client's behalf, including Uber and Upwork.
- You sold at least $600 worth of goods on a site like eBay, Etsy or StockX.
Each 1099-K shows your total payment volume for the year. You may receive separate 1099-Ks if you've received payments from more than one company.
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Why Are You Getting a 1099-K Now?
Many more taxpayers will receive a 1099-K for the 2023 tax year than in years past. That's because the IRS requirement for PSEs has changed. Prior to 2023, PSEs issued 1099-Ks only when a payee received transactions of more than $20,000 and had at least 200 transactions. This change was originally set to go into effect in 2022, but last-minute change in the law postponed implementation until 2023. With the threshold now set at $600 in total transactions, many more people will receive the form going forward.
What This Means
Business owners, independent contractors, gig workers, freelancers, people who sold goods via online marketplaces and others who received business payments by credit card, debit card or payment services may now receive a 1099-K reporting their total transactions, even if their transaction volume was small. The IRS will also receive copies of these 1099-Ks to help them verify gross income.
Here are a few examples of transactions that may be reported:
- Receiving payment for goods or services by PayPal, Venmo or Cash App
- Doing odd jobs, gig work, freelance work or childcare through an online service that pays you directly
- Selling items on eBay, Etsy or another online marketplace
- Using a payment service to process card payments for your business
Personal transactions will not be reported on a 1099-K. For example, splitting the dinner check with friends or getting reimbursed for your roommate's share of the rent don't count as business payments and therefore won't appear on a 1099-K.
How to Use Form 1099-K
If you do receive a 1099-K, don't overlook it. Unless you've received the form in error, transactions reported on your 1099-K must be reported on your taxes. If the income on your tax return doesn't match up with the income on your 1099-Ks, the IRS may take a closer look at your return.
Where Do You Report 1099-K Income?
Businesses should include 1099-K income in their gross receipts or sales for the year. If you also accept cash, checks and other types of electronic payments—or you received payments from more than one PSE—your gross sales may exceed the payments shown on your 1099-K. That's okay. But if your gross sales are less than the amount shown on your combined 1099-Ks (and other 1099s issued to your business), be prepared to explain why to the IRS.
Also note: If a 1099-K includes transactions that are not taxable, such as refunds or cash back you paid to customers on debit transactions, report the full gross payment amount and use the line for "refunds and allowances" to subtract non-taxable transactions. Your gross receipts should reflect the full amount shown on your 1099-Ks.
Sole proprietors who file Schedule C with their personal taxes should also include 1099-K income in their gross receipts as described above. Schedule C is commonly used by independent contractors, gig workers and solo ventures.
What If You Only Sold a Few Personal Items Online?
Online merchants who sell goods as a business should use Schedule C or a business tax return to account for sales, profits, expenses and losses. If you just sold your old dining room furniture to raise a few extra dollars, ask your tax preparer if you can use Schedule D and Form 8949 on your personal tax return to report the income and show a profit or loss. If you sold your furniture for $750 but paid $1,000 for it, you shouldn't have any taxable profits.
Confused by the information you received on a 1099-K? Not sure how to file a business tax return or Schedule C? Receiving a 1099-K (or multiple 1099s) can complicate your taxes. A tax pro can help you figure out the best way to report 1099-K income and balance it out against business expenses to determine your taxable income.
What if your 1099-K is wrong?
Contact the PSE directly if you find errors on your form, including these:
- You are not the person or business named on the 1099-K.
- You are not an account holder or did not receive the payments shown.
- Your taxpayer identification number (TIN) is incorrect.
- The transaction total doesn't square with your monthly statements.
- Transactions shown were on a personal account and not for business.
Ask the PSE to issue a corrected 1099-K and save copies of it for your tax records.
The Bottom Line
Form 1099-K is meant to encourage taxpayers to report their business income and pay the taxes they owe. If you own a business—or supplement your regular income with side work—now's the time to get your gross receipts and expenses in order, so you can file and pay your taxes accurately and completely.
Don't hesitate to look for help if you need it. The IRS has guidance on understanding Form 1099-K, Schedule C and Schedule D for capital gains and losses. Or find a tax advisor who can help walk you through accounting and tax preparation, so all your bases are covered.