What is a 1099-K form? Who gets one and how to report income for taxes

Update, November 29, 2023: The IRS is delaying the 1099-K threshold change for third-party settlement organizations (TPSO) like PayPal and Venmo. Taxpayers and small businesses will not receive a 1099-K from TPSOs for tax year 2023 (taxes you’ll file in 2024) unless they receive over $20,000 in payments from over 200 transactions. The IRS now plans to use the 2024 tax year (taxes you’ll file in 2025) as a transition year with a threshold of $5,000 before implementing the planned $600 threshold. The original article below focuses on the $600 threshold — we’ll provide an update when the IRS provides more information. 

Original article continues below:

As a small business owner, you may be swimming in various tax documents, from issuing Form W-2s to your employees or gathering your income and expenses for your tax return. Due to recent changes, the IRS now has a lower reporting threshold for 1099-k forms. As a result more 1099-K forms are expected to be sent to individuals and businesses starting in 2024. 

Most small businesses didn’t get a 1099-K form last year, but given the recent changes to Form 1099-K requirements, you might get one (or more) this year. 1099-K forms come from payment cards (think merchant services processing credit, debit, and gift cards) or third-party payment networks that include marketplaces (such as eBay or Etsy) or payment apps and processors (such as PayPal or Venmo) you use. 

Each of those companies is responsible for sending you a 1099-K form (they also send a copy to the IRS and in some instances your state too). So you may get more than one if you do business on many marketplaces or use various payment apps.

 Let’s dig into what a Form 1099-K is and what you need to do with it.  

What is a 1099-K form used for?

The IRS uses Form 1099-K to track digital payments through payment cards and third-party payment processors. It helps the IRS validate that all businesses are reporting the correct sales so the government can tax them correctly. 

The form reports business income your company collected using payment card transactions and third-party network transactions. The IRS requires all freelancers, retailers, independent contractors, and other businesses that receive one or more 1099-K forms to report it on their income tax returns. The 1099-K form will come from the company, not the IRS, and each company is responsible for sending one (hence, you may get more than one). 

There are two instances where a vendor will need to send you a Form 1099-K: 

1. If you had more than $600 in transactions from: 

• Payment companies like Venmo, PayPal, Cash App, Zelle, or Apple Pay.
• Platforms for self-employed or gig workers, such as eBay, Etsy, Facebook Marketplace, Shopify, Uber, Lyft, Upwork, or Fiverr. 

2. Banks or financial intuitions if you receive any amount via payment cards (such as debit or credit cards). For example, if you use a credit card terminal in your store, you’ll get a 1099-K form from the company that issued you the terminal if you transacted any amount. 

Again, each payment processor or platform is responsible for sending you a Form 1099-K if you did more than $600 in business transactions regardless of the number of transactions. So if you sold $600 via Venmo and $600 on eBay, both companies would send you a 1099-K.

Who gets a 1099-K form?

Vendors you use, like eBay, Stripe, or Square, that process electronic payments and digital transactions must send 1099-K forms to anyone that uses their platform and receives payments for services or goods that total more than $600 - regardless of the number of transactions. 

So you’ll get more than one if you do business on multiple platforms. If you receive one or more 1099-Ks, you must then include all the information from the form(s) on your income tax return.

Don’t be surprised if the 2023 tax year will be the first time you receive Form 1099-K, even if you’ve been in business for a few years. Here are the big changes for Form 1099-K:  

• In years prior to 2023, the reporting thresholds were different. The minimum threshold to get a 1099-K was $20,000 and 200 transactions. This means you didn't receive one if you didn’t earn over $20,000 in digital or credit card payments and did not have at least 200 transactions. For 2022 (taxes you likely filed in 2023), the IRS delayed the implementation of the lower threshold of more than $600.
• For years 2023 and later, the reporting requirements were reduced to more than $600 in transactions, with no minimum transaction threshold. To address the changes the IRS delayed implementation of the lower threshold. As a result, the threshold of more than $600 transactions will impact your 2023 taxes (the taxes you will likely file in 2024). 

You will only receive a Form 1099-K from a third-party digital payment network like Venmo or PayPal, or marketplaces like car sharing or auction sites if your earnings exceed $600. However, you will receive a 1099-K form for all payment card transactions, no matter the amount.

For example, say you’re a small business owner selling handmade leather goods. You sell via online marketplaces, in person, and through a small storefront. Here’s a record of your sales and other freelance income you have by platform: 

• $700 in sales on eBay
• $1,500 in sales via your Etsy store
• $1,300 via in-person sales using Venmo
• $2,000 via your credit card processing machine at your storefront 
• $800 driving for Uber
• $650 for side hustle income from Upwork 

In the above example, each vendor would send you a 1099-K form since you had more than $600 income from each. 

Who should not get a 1099-K? 

If you receive more than $600 in personal payment transactions, you should not get a 1099-K form. The tax form is only for business-related income. In other words, if you use a card reader or a third-party app, don’t use it for non-business purposes. If you do, you may have to pay taxes on the transactions. 

Payments for splitting costs with someone generally aren't considered taxable income. These are typically considered nontaxable payments and shouldn’t be on your tax return as income, so you’ll want to avoid getting a 1099-K form for them. 

For example, if you split costs with a family member, roommate, or other nonbusiness acquaintance through a cost-sharing situation, you wouldn’t want to use your business payment card reader to get paid for these items (unless you can categorize them as personal). The payment company likely wouldn’t be able to differentiate the business payments from the nonbusiness payments otherwise. 

1099-K deductions 

If your business receives one or more 1099-K forms, you can deduct certain expenses related to that business income. Let’s look at some of the expenses you might have if you receive digital payments:

The specific deductions that you can take will depend on your individual circumstances. You should consult with a tax advisor to determine which deductions are available to you.

Steps for reporting 1099-K income

Reporting and filing Form 1099-K on your tax returns still work the same. It’s very similar to other tax forms you’ll run into as a business owner. You’ll need certain information from this form to complete your overall tax return. 

Below are the four steps for reporting 1099-K income. 

Step 1: Know who’ll send you 1099-K forms 

If you’re like many small business owners, you likely use several forms of payment from credit cards to Apple Pay and others. It’s your responsibility to keep track of your transactions throughout the year. Using accounting software that links to your bank account can help streamline this task. 

Remember, for third-party payment processors, you will not receive a 1099-K form if you did not earn more than $600 via their platform. However, you still need to report all your income from sales on your tax return even if you didn’t get a 1099-K. 

Step 2: Confirm each 1099-K form has the correct information

Closely examine your 1099-K form and ensure that the amounts and information on them are correct. This means checking:

• Your name.
• Business name.
• Address.
• Account number.

• Taxpayer identification number.
• Gross amount of payments.

Failing to be thorough can lead to paying incorrect taxes. For example, if you miss reporting your gross payment amount and transfer this incorrectly onto your tax return, you’ll likely pay the incorrect amount of taxes. 

Step 3. Check for tax deductions

Businesses that incur credit card processing fees or credit card company charges are eligible for a tax deduction for those expenses. However, it is up to you to track your expenses, charges, and fees during the year so you can write them off. 

Step 4: Prepare your Schedule C

Schedule C (Form 1040) is an IRS form that shows the income or loss your business incurred during the year. Since a 1099-K form reports payments you received via a third-party payment platform or app , you'll include that information on your Schedule C form as part of your tax return. 

Once you’ve checked that your 1099-K form shows the correct amounts and information, the next part is to fill in the 1099-K gross payment amounts and fees into your Schedule C form. 

Find peace of mind come tax time

Whether this is your first go-round with a Form 1099-K or your tenth, there are things you can do to ensure you’re ready for tax season. This includes leveraging experienced bookkeepers to assess your accounting books and help with all your 1099 forms.

With live bookkeeping services like QuickBooks Live, you can also ask questions about income tax returns, refunds, and tax forms like Form 1099-MISC and Form 1099-K.