Form 1099-K: Definition, Uses, Who Must File

What Is Form 1099-K: Payment Card and Third-Party Network Transactions?

The forms in the Internal Revenue Services (IRS's) 1099 series help taxpayers report monies received from a variety of sources that aren't a paycheck. Form 1099-K is the IRS form that taxpayers receive to report certain payment transactions. If you're self-employed or an independent contractor, you report 1099-K income on Schedule C of your federal Form 1040 tax return.

Who Receives Form 1099-K: Payment Card and Third-Party Network Transactions?

You should receive Form 1099-K by Jan. 31 if, in the prior calendar year, you received any payments from payment card transactions ( including debit cards, credit cards, or stored-value cards), and/or in settlement of third-party payment network transactions (PayPal, Venmo, Zelle, etc.) involving:

• For the 2023 tax year, gross payments of more than $20,000 and more than 200 transactions
• For the 2024 tax year, the IRS is planning a threshold of $5,000 in gross payments to phase in the requirements of the American Rescue Plan

You receive a 1099-K from each payment settlement entity (PSE) from which you received income for reportable payment transactions in the previous year. That means a payment card transaction or a third-party network transaction:

• "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 settled through a third-party payment network—but only after the total exceeds the above thresholds.

The gross amount of a reportable payment doesn’t include adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts, or any other amounts.

IRS Changes for 2023 and 2024

In November 2023 the IRS announced that it would delay requirements for tax year 2023 that would have instituted a $600 threshold for third-party platform payments taxpayers get for selling goods or providing a service. (The $600 threshold is a new requirement under the American Rescue Plan, which was signed into law in 2021.) Instead, the previous threshold of more than $20,000 for over 200 transactions will prevail in 2023. In tax year 2024, the IRS plans a threshold of $5,000 as a way to phase in the new law.

Be forewarned: Although the threshold is more than $20,000 and 200 transactions, anyone who uses payment apps or online marketplaces to get payments for selling goods or providing services—for example, those with side hustles, crafters, small businesses, and gig workers—could still receive a 1099-K for any amount. In addition, whether a 1099-K is sent or not, all income is taxable and needs to be reported on your tax return unless it's excluded by law.

The IRS made these changes "to reduce taxpayer confusion." One reason for the potential confusion: Many people who casually sold personal items like clothing, furniture, and other household objects for less than they paid for those things could have received 1099-Ks if the threshold had been $600—even though selling items at a loss isn't taxable income.

How to Read Form 1099-K: Payment Card and Third-Party Network Transactions

It's critical that the business income reported on your tax return correlates with the amounts on your 1099-K. Check your payment card receipt records and merchant statements to confirm that the amount on your 1099-K is accurate. Also, review your records to ensure gross receipts are accurate. Do you have reported income from all forms of payment received—including cash, checks, debit, credit, and stored-value card transactions? Backup documentation is key.

You may need to take special action regarding your 1099-K. Is the payee taxpayer identification number (TIN) incorrect? Is the gross amount of payment card/third-party network transactions or the number of payment transactions incorrect? Does the merchant category code (MCC) correctly describe your business? Does the form not belong to you? if it doesn’t, contact the PSE listed on the form to try to determine why you received the document. The name and telephone number should be on the lower left of the form.

If there's an error on the form—such as your Social Security number in place of your business TIN—request a corrected form from the PSE. Keep a copy of any corrected 1099-K you receive, as well as any correspondence with the PSE.

Other points:

• If you shared your credit card terminal with another person or business, your 1099-K will include payment card transactions belonging to whoever shared your terminal, in addition to your own payments. Where required, you should file and furnish the appropriate information return for each person or business with whom you shared a card terminal. The information return should include the total payment card transaction amount, in addition to any other income belonging to the other person or business.
• If you bought or sold your business during the year, your form may include payments for transactions made before you purchased, or after you sold, the business.
• If you changed your business structure during the year—such as incorporating or converting from a sole proprietorship to a partnership or vice versa—and continued using the same card terminal, the amount on the 1099-K may not correspond with your new entity’s tax return.
• If you allow your customers to receive cash back when they use their debit cards for purchases, the 1099-K you receive will include those cash-back amounts as part of the gross payment card transactions. Generally, you would not include cash-back amounts as part of your gross receipts on your income tax return.

All copies of Form 1099-K are available on the IRS website.

The Bottom Line

The 1099-K is an important form when you report business income on your tax return. It contains a lot of information, so verify that everything on the form is correct. If you don't, you could run into trouble. If you have questions, contact your payment settlement entity and/or work with a tax preparer or expert.