Understanding Your Form 1099-K

 

 

Form 1099-K, Payment Card and Third-Party Network Transactions, is an IRS information return used to report certain payment transactions to improve voluntary tax compliance. You should receive Form 1099-K by January 31 if, in the prior calendar year, you received payments:

• From all payment card transactions (e.g., debit, credit, or stored-value cards), and

• In settlement of third-party payment network transactions above the minimum reporting thresholds as follows:

  • For returns for calendar years prior to 2022:

    • Gross payments that exceed $20,000, AND

    • More than 200 such transactions

  • For returns for calendar years after 2021:

    • Gross payments for goods or services that exceed $600, AND

    • Any number of transactions

The American Rescue Plan of 2021 changed the reporting threshold for third-party settlement organizations, including payment apps and online third-party settlement organizations. The new threshold requires reporting of transactions in excess of $600 per year; changed from the previous threshold of an excess of 200 transactions per year and an excess of $20,000. TPSOs are required to report payments for goods and services. The law is not intended to track personal transactions such as sharing the cost of a car ride or meal, birthday or holiday gifts, or paying a family member for a household bill.

NOTE: On Dec. 23, 2022, the IRS announced that calendar year 2022 will be treated as a transition year for the reduced reporting threshold of $600. For calendar year 2022, third-party settlement organizations who issue Forms 1099-K are only required to report transactions where gross payments exceed $20,000 and there are more than 200 transactions.

Even though the Form 1099-K reduced reporting requirement for third-party settlement organizations was delayed, some individuals may still receive a Form 1099-K who have not received one in the past. Some individuals may receive a Form 1099-K for the sale of personal items or in situations where they received a Form 1099-K in error (i.e. for transactions between friends and family, or expense sharing). IRS is updating guidance to direct taxpayers to report these scenarios on the Form 1040, Schedule 1, for tax year 2022. See the section titled “Information for personal income” for additional information.

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What is included on the Form 1099-K?

Whether you own a business, are self-employed, work in the gig economy or are selling personal items, Form 1099-K includes the gross amount of all payment transactions. You may receive a Form 1099-K from each payment settlement entity from which you received payments in settlement of reportable payment transactions. A reportable payment transaction is defined as a payment card transaction or a third-party network transaction. A third party network transactions may include a payment through a payment app.

• Payment card transaction means any transaction in which a payment card, or any account number or other identifying data associated with a payment card, is accepted as payment.

• Third party network transaction means any transaction that is settled through a third-party payment network, but only after the total amount of such transactions exceeds the minimum reporting thresholds.

The gross amount of a reportable payment does not include any adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts, or any other amounts. The dollar amount of each transaction is determined on the date of the transaction.

NOTE: The minimum reporting thresholds for tax years after 2021 apply only to payments settled through a third-party payment network; there is no threshold for payment card transactions.

Information for personal income

If you sold goods or provided services and used a third-party settlement organization, you may receive a Form 1099-K. If you received income for services you provided, including payments received through gig economy work, see Information for businesses and those who are self-employed below.

There are no changes to what counts as income or how your tax is calculated, including income from the sale of personal assets. You must report all your income on your tax return unless it’s excluded by law.

What should I do if I received a 1099-K in error or for a personal item I sold?

If you receive a Form 1099-K for the sale of personal items or received a Form 1099-K in error, follow the chart below for reporting instructions.

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Information for businesses and those who are self-employed

What should I do with this information?

If you own a business or are self-employed, including those who work in the gig economy, it is important that your business books and records reflect your business income, including any amounts that may be reported on Form 1099-K. You must report on your income tax return all income you receive. In most cases, your business, including self-employment income will be in the form of cash, checks, and debit/credit card payments. This income is generally referred to as gross receipts on income tax returns. Therefore, you should consider the amounts shown on Form 1099-K, along with all other amounts received, when calculating gross receipts for your income tax return.

Forms 1099-K can report many types of transactions that should be considered when filing. In some instances, taxpayers may receive a Form 1099-K for the sale of personal assets or for transactions that are not required to be reported.  To help with filing requirements, the IRS is providing guidance for these specific scenarios for the 2022 tax year. See section Information for personal income for more information.

How do I check my records with what is reported on the Form 1099-K?

• Check your payment card receipt records and merchant statements to confirm that the amount on your Form 1099-K is accurate

• Review your records to ensure your gross receipts are accurate and reported correctly on your income tax return

• Determine whether you have reported income from all forms of payment received, including cash, checks, and debit, credit, and stored-value card transactions

• Maintain documentation to support both the income and deductions you report on your income tax return

Do any of these statements apply to the Form(s) 1099-K you received?

• The Form 1099-K does not belong to you or is a duplicate

• The payee Taxpayer Identification Number (TIN) is incorrect

• The gross amount of payment card/third party network transactions is incorrect

• The number of payment transactions is incorrect

• The Merchant Category Code (MCC) does not correctly describe your business

If so, consider the following:

• If the Form 1099-K does not belong to you, contact the Payment Settlement Entity (PSE) listed on the Form 1099-K to try determining why you received the document. The name and telephone number should be shown in the lower-left part on the form. If a PSE name and number are not shown, contact the Filer at the number shown in the upper-left corner on the form. Retain any correspondence with the PSE. 

• If there is an error on the form, request a corrected Form 1099-K from the PSE. Keep a copy of any corrected Form 1099-K you receive with your records as well as any correspondence with the PSE.

What should I do when the total gross payment amount shown on Form 1099-K does not belong to me?

In some cases, the total gross payment amount on Form 1099-K may not belong to you. The following examples illustrate such situations and provide information that may help you determine how to account for the amount of gross payments shown on the Form 1099-K you received.