1099-K form: Everything you need to know

April 29, 2021 : H&R Block

Do you sell items on eBay, drive for a ridesharing service, or own a business that accepts payments via credit or debit cards? If you answered yes to any of these questions there is a good chance you will receive a Form 1099-K.

What is a 1099 K?

First, let’s answer, “what is a 1099-K?” Form 1099-K, Payment Card and Third Party Network Transactions, is a tax form that should be filed with individual tax return. Unlike other varieties of the Form 1099, this form has a special purpose for payments received via a third party network or credit/debit card transaction.

What is a 1099-K used for?

Next, we’ll answer, “what is a 1099-K used for?” Essentially, it’s used to report transactions made via a 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.

Have you received a Form 1099-K and have questions about how it affects your taxes?  Check out our Guide to Gig Worker Taxes.

When is Form 1099-K issued?

Beginning in 2022,  the payee must be issued a Form 1099-K if the service processed more than $600 worth of payments regardless of the number of individual payments or transactions.

Previous to 2022, you would receive this form:

  • From payment card transactions (e.g., debit, credit or stored-value cards), and/or
  • In settlement of third-party payment network transactions above the minimum reporting thresholds of
    • The service processed more than $20,000 worth of payments, and
    • The service processed more than 200 individual payments.

There is no threshold for payment card transactions.

1099-KWith that being said, the rule applies when the form is actually required. Many entities that process card payments on behalf of their customers will issue a 1099-K form 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 from Form 1099-K

Most individuals’ 1099-K form reports payments to their trade or business. As such, the income for sole-proprietors is reported on their Schedule C as gross receipts subject to the self-employment tax.

Partnerships and corporations would report those amounts in a similar manner on their returns.

IRS enforcement of the 1099-K form 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.

Don’t accept nontaxable payments via credit or debit card

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.

1099-K instructions

Need some 1099-K instructions? Here are the form fields on Form 1099-K:

  • Filer’s name, address, and phone number
  • Filer’s Tax Identification number (TIN)
  • Payee’s TIN
  • Check to indicate if filer’s a Payment settlement entity or Electronic Payment Facilitator
  • Check to indicate transactions reported are: payment card or a third-party network
  • Payee’s name, address, PSE’s name, telephone number, and account number
  • Gross amount of payment card/third-party network transactions
  • Card not present transactions
  • Merchant category code
  • Number of payment transactions
  • Federal income tax withheld
  • 5a-5l: Income earned by month, January through December
  • State
  • State identification number
  • State income tax withheld

There are multiple forms that will be filed:

Copy A: For the IRS

Copy 1: For state tax departments

Copy B: For payee

Copy 2: To be filed with the receipt’s state income tax return, when required

Copy C: For Filer

More help with Form 1099-K

Still have questions? Locate your nearest H&R Block tax pro to discuss your unique tax needs.

For help with other types of 1099s, review our Form 1099 post.

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