What is Form 1099-K, and Why Did I Get One?

April 01, 2015 : Mike Slack

Ed note: We’ve talked a lot about the brand new 1095-A form that many people are getting this year. However, we’ve also gotten a lot of questions about the 1099-K. This isn’t a new form, but it is one that is showing up in more and more mailboxes as the way we do business changes.

  • Do you sell items on eBay?
  • Drive for a ridesharing service?
  • Does your business accept payments via credit or debit cards?

If you answered yes to any of these questions, there is a good chance you will receive Form 1099-K.

Form 1099-K, Payment Card and Third Party Network Transactions, is used to report transactions made via payment settlement entities. Simply put, if you use a service to process credit or debit card transactions, that service is a payment settlement entity, and the amount of those types of transactions for the year should be reported on the Form 1099-K.

When is Form 1099-K Issued

Not everybody who uses such a service will receive a Form 1099-K, because technically the form is not required to be issued unless:

  1. The service processed more than $20,00 worth of payments, and
  2. The service processed more than 200 individual payments.

If you do not meet both of those requirements, you are not required to be issued a Form 1099-K. That being said, the above rules just describe when the form is actually required. Many entities that process card payments on behalf of their customers will issue a Form 1099-K when the amount of payments and number of payments are far below this threshold. Some will even issue the form when there is a little as one transaction processed during the year.

Taxation of Amounts Reported on Form 1099-K

Most individuals’ Form 1099-K reports payments to their trade or business. So if you are a sole proprietor, information from the 1099-K should be reported as income on a Schedule C. The amount is subject to the self-employment tax. Partnerships and corporations would report those amounts from the 1099-K in a similar manner on their returns.

IRS Enforcement of Form 1099-K Reporting

When it first debuted in 2011, Form 1099-K was treated as almost a second thought. In fact, there was even a special line on the Form 1040 for amounts from the form that taxpayers were specifically instructed to ignore. Since then, the IRS has started contacting taxpayers whose gross business income is less than the amount reported on the form. So now it is highly advised to include all 1099-K information on your tax return, no matter how small the number are.

Avoid Accepting Nontaxable Payments via Credit or Debit Card

One caveat to be aware of is that it may not be advisable to accept non-business payments using a card reader. For example, if you split the rent with your roommate, it’s probably not a good idea to have them pay you for their half using their debit card and a smart-phone card reader, because the processor will not be able to differentiate the payment and may issue a Form 1099-K including the rent payments. Splitting rent with your roommate is not generally a taxable transaction, but the IRS will probably send you a notice if you’re issued a Form 1099-K and that amount does not appear anywhere on your return.

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Mike Slack

Mike Slack

The Tax Institute, H&R Block

Mike Slack, JD, EA, is a senior tax research analyst at The Tax Institute. Mike leads research teams focused on business and investment tax issues.