Did You Get a Form 1099-K and Aren’t Self-Employed or a Small Business?
If you receive payments either by electronic transfer or credit card, you may receive Form 1099-K and possibly need to report some or all of the income that you receive.
- Who gets a Form 1099-K?
- Who should not get a Form 1099-K?
- Who has to file a Form 1099-K?
- Do you have to report Form 1099-K income?
- Don’t get taxed on non-taxable income
- Don’t mix personal and business payments
- What to do if you need to separate personal payments from business on a 1099-K form
- What to do if you receive an incorrect 1099-K form
- How to handle these important changes to Form 1099-K
- Form 1099-K is a tax form used to report certain electronic and credit card payment transactions.
- The form includes the annual gross amount of all reportable payment transactions made through an individual payment card processor or third-party payment network.
- The IRS recently postponed the lowering of the reporting threshold for third-party transactions.
What is a Form 1099-K?
The IRS Form 1099-K is a form issued by third-party payment processors to their users who receive payments. Examples include:
- Peer-to-peer payment platforms like PayPal and Venmo
- Online marketplaces like eBay and Facebook Marketplace
- Real estate marketplaces like AirBnB and VRBO
- Automobile crowdsourcing platforms like Uber and Turo
- Ticket resale exchanges like StubHub and SeatGeek, and more
The IRS planned to implement changes to the 1099-K reporting requirement for the 2023 tax year. However, the IRS recently delayed the implementation of the new $600 reporting threshold for transactions from third party processors like Venmo and Paypal, reverting tax year 2023 back to the previously higher 1099-K reporting threshold (over $20,000 in payments and more than 200 transactions).
However, some individual states have already begun to use the lower reporting threshold. Maryland, Massachusetts, Vermont, Virginia and the District of Columbia have a $600 threshold for requiring 1099-K in effect for 2023. North Carolina and Montana also have a $600 threshold, although state tax officials have said these states may offer relief. If you don’t receive a 1099-K, the IRS still expects you will report all your income, regardless of the amount.
These companies are also required to send a copy to the IRS and the state taxing authority in which the user resides, meaning both you and the taxing authorities should get copies.
When would you receive Form 1099-K?
A few months before your taxes are due each year at the tax filing deadline (generally April 15th for individual taxpayers), important forms should start arriving through the mail, in your email, or via dashboard notifications in the apps you use to send or receive money.
One of the informational forms you may receive by January 31 is the Form 1099-K, that used to be almost exclusively associated with businesses.
If you’re self-employed as a business owner and receive payments via third-party platforms, read this article on Form 1099-K tips for business owners.
What is a 1099-K form used for?
If you receive more than the threshold in reportable payments for goods and/or services through a third-party payment network, your payments are required to be reported on Form 1099-K by the company processing the payments. Those payments can include income as a result of:
- Business (self-employed, independent contractor, freelance, gig-work)
- Real estate rentals
- Hobby sales
- Personal item rentals or sales
However, just because you’ve received payments through a third-party network that meet the minimum payment or transaction thresholds doesn’t necessarily mean you need to count these payments as taxable income. We cover several examples when you might receive a 1099-K form when you are not in business and whether you need to report these payments as income or not.
The 1099-K form provides a record of gross reportable payment transactions provided by a payment card or third-party payment network and is used in the following ways:
- To alert the IRS and state taxing authorities of possible reportable income
- To help individuals and businesses reconcile payments processed with their records
Who gets a Form 1099-K?
Depending on how you use a third-party payment service, if you receive payments during a tax year in excess of the applicable threshold for the provision of goods or services, you generally should expect to receive a Form 1099-K. It doesn't matter if the payments were large or small, you should still expect to receive a form from any payment network where you met the form’s requirements. Providing goods and services is not limited to businesses. Individuals not operating a business often provide goods and services but might not think that they do.
The IRS and your state taxing authority should also get copies of this form. Below, we cover several instances when you may unexpectedly receive a 1099-K form and how you should handle it.
Who should not get a Form 1099-K?
If you use a peer-to-peer payment platform like PayPal, Venmo or CashApp to make payments between friends and they are classified as friends-and-family payments, you generally shouldn’t receive a 1099-K form reporting these payments. However, if someone making payments to you marks the payments as business transactions and the amounts total more than the threshold during the year, you will likely receive a 1099-K form reporting these payments.
Who has to file a Form 1099-K?
Filing a Form 1099-K with the IRS and the payment recipient is the responsibility of the payment service, such as Visa, Venmo or PayPal. If you don’t receive one but suspect you may have gotten more than the threshold in payments for any reason, check your account dashboard to see if one has been issued to you. Every company might not send one through the mail. It’s up to you to check account messages in all of your payment accounts to be sure you don’t miss anything.
Do you have to report Form 1099-K income?
If you receive Form 1099-K, you might wonder what you need to do with it. Here are a few scenarios you may fall under, along with how to handle the amount reported on a 1099-K form:
The IRS defines a hobby as an activity that a person pursues because they enjoy it and have no intention of making a profit. That doesn’t mean you can’t make money from it, but it isn’t a material means for earning income. You still need to report the income that you make throughout the year from a hobby on your tax return. With a hobby you won’t be able to claim expenses to help offset the income that you make on your federal tax return, though you may be able to on your state tax return. You should carefully assess whether the money you make is truly a hobby or a business. The IRS lists several factors to help you distinguish between a business and a hobby.
As an example, if you knit blankets as a hobby and had the opportunity to knit one for a friend or family member who offered to pay for the blanket, you’d need to report the income on your tax return that you received from the sale.
Beginning in 2018, the IRS doesn't allow you to deduct hobby expenses from hobby income although some states do allow it. That means if you paid $10 for the materials but sold it for $25, you’d need to report the full $25 as income on your tax return. If you used a payment processing platform to receive payment and the method for payment chosen was as a business transaction, you’d typically receive a Form 1099-K reporting your transactions if they met the annual threshold.
So, if you only sold one knit blanket on the platform for $25 and had no other transactions marked as business, you’re not likely to receive a 1099-K form. However, if you sold other items and the total payments were marked as business and amounted to more than the threshold for the year, you should expect to receive a Form 1099-K from the payment processor.
No matter if you have a hobby or a business, you’ll still need to report the income on your taxes and you can use the 1099-K form to help you reconcile the amounts for the year.
One benefit worth noting on hobby income is that you won’t need to pay self-employment tax on your earnings as you would with other types of earned income from a job or as a freelancer.
Personal item sales
When you sell personal-use items, you generally only need to report the sale on your tax return if it was sold for more than what you originally paid. Let's say you purchased a vintage coffee grinder for $5 in 1987 and recently sold it on eBay for $85. In that case, you'd have to report the $80 profit as an asset sale on your tax return.
However, most of the time, personal-use items you sell like cars, appliances, clothing, and other household items decrease in value after the initial purchase. Therefore, when you sell them later, you usually receive less than what you originally paid for them. That means there’s no gain, you are typically not allowed to deduct the loss, and you are not required to report the loss from a personal-use asset sale.
One example of this includes selling items at a garage sale or on Facebook Marketplace and then accepting payment for sales through a peer-to-peer payments platform like PayPal, Venmo or CashApp. There can be confusion between the buyer and seller when processing payments through these services.
If the buyer marks these transactions as a payment for goods or services and you exceed the reporting threshold for the year, you’ll likely receive a Form 1099-K from the payment processing platform.
Although you are typically not required to report the sale of personal-use assets sold at a loss, you might want to include them on your tax return anyway, especially if you receive a Form 1099-K. The 1099-K form is sent by payment processing companies to both you and the IRS. Including the information regarding the sale of the assets reported on the 1099-K form can help match the information on your tax return to the information that the IRS receives from the payment processing company. This can lower the chances of receiving a notice from the IRS asking about the amount shown on the Form 1099-K.
Another example is reselling tickets you purchased to an entertainment event like a basketball game, concert or other ticketed event. If you resell these tickets on a resale platform like StubHub, SeatGeek or TicketMaster and these payments total more than the reporting threshold, you should receive a 1099-K form from the resale platform.
If, for example, you owned season tickets to a sports team but sold your seats to one of the games because you were unable to attend, these proceeds might not need to be reported on your tax return. That’s the case if you sold them for a loss. However, if you purchased them and sold them for a gain, you need to report this gain on your tax return, even if it doesn’t get reported on a 1099-K form.
If you purchase tickets and resell them with the explicit purpose of making a gain, you’ll need to report this income on your tax return. If this activity amounts to more than the reporting threshold during a given year, you’ll likely receive a Form 1099-K from the ticketing platform indicating the payments that you received.
Personal property rental that isn’t real estate
When you have personal property that you rent out to others, you generally need to include this income on your tax return. This can include renting out household items like tools or yard equipment but can also include items like cars, boats or other transportation equipment for a profit.
One example you might encounter comes from renting out your car on a sharing platform like Turo. If you rent out your car you will need to include this income on your tax returns. Also, keep track of any expenses related to renting your car to include on your tax return. If you exceed the reporting threshold for payments processed by the platform during the year, you may receive a Form 1099-K.
Don’t get taxed on non-taxable income
While Form 1099-K is supposed to be issued by third-party settlement organizations only for transactions for providing goods or services, there are several instances where using a third-party payment processing network could result in you receiving the form. But, you may not need to report this as taxable income. While the following is not an exhaustive list, it does cover several instances where you might unknowingly participate in a financial activity that triggers a 1099-K form being sent to you, but still doesn’t typically require you to recognize these payments as taxable income on your tax return.
- If you’ve received payments from friends on Venmo for a restaurant bill
- Sold some items on eBay or Facebook Marketplace as a virtual yard sale for a loss
- Tickets sold on TicketMaster, StubHub or SeatGeek for a loss
- Getting paid by your roommate for their share of the rent so only one payment goes to the landlord
- Rented your home for fewer than 15 days during the year with a service such as Airbnb or Flipkey
If you receive a Form 1099-K for income that is not taxable income, the IRS provides information on how to report this amount. You can report the amount in Part 1, Line 8z, Other Income of Schedule 1, Addition Income and Adjustments to Income and also report the the non-taxable amount in Part 2, Line 24z, Other Adjustments of the same form. This process adds an amount to your income and then subtracts an amount from your income while at the same time accounting for the amount shown on the 1099-K on your tax return so that it matches the IRS records.
Payment solutions like PayPal, Venmo, CashApp and others are very popular and are used by people who never had any intention of generating taxable income. If you or the buyer classifies the transactions as payments made for goods or services and they exceed the reporting threshold for the year, you generally should expect to receive a Form 1099-K from these peer-to-peer payment platforms. In fact, if you've sold more than the reporting threshold amount of goods or services and the buyer used the payment protection processing features offered by these platforms, whether you’re organized as a business or not, you will generally receive a 1099-K form. This income will also be reported to the IRS on Form 1099-K.
If, however, you receive payments for settling up the bill for a night out at a restaurant with friends, the payments will likely be handled as friends and family payments, and you shouldn’t expect to receive a Form 1099-K from the payment processing platform. This also includes parents using apps such as Venmo to send their college kids money for extra cafeteria meals or roommates needing to pool funds before paying the landlord each month. Splitting the check for dinner or sharing expenses would rarely if ever need to be reported on your tax return.
So, what do you do if you get a 1099-K form and you don't have taxable income from the platform? You typically don’t have to include it as taxable income on your tax return although you might want to document it using Schedule 1 as noted above. Time will tell if having so many 1099-K forms going out for these types of transactions will be problematic for the IRS or taxpayers, but – for now – just know that personal payments aren’t business payments, and you don’t have to report them as taxable income.
Don’t mix personal and business payments
One way to avoid getting 1099-K forms for money that isn’t income-related is to only use the platforms for business or set up two accounts to keep business and personal transactions separate. While PayPal has introduced a “family and friends” payment type, it may take time for users to know about this feature and use it consistently. It isn’t counted in the amounts reported on Form 1099-K, but it also lacks the buyer protections that standard payments have. When asking friends or family to send you money, use the appropriate designation on the request to simplify your reporting later.
Also worth noting: Business accounts can no longer receive "friends and family" payments, although they can still send them. If you want to receive personal payments and have a business PayPal account, you'll need to set up a separate personal account for these transaction types.
What to do if you need to separate personal payments from business on a 1099-K form
If you’ve already received a Form 1099-K for the year, check the amount against your own records to be sure that none of your personal payments are included in the amount. If they are, don’t count those personal payments as taxable income that you report on your tax return for the year. Whether you have a hobby or a business, Form 1099-K amounts shouldn’t serve as a substitute for your own record-keeping.
Moving forward, look for ways to keep personal payments out of your Form 1099-K reports, such as using family and friend features.
What to do if you receive an incorrect 1099-K form
Mistakes can happen, especially on tax forms. This is a very good reason to check the amount on your 1099-K form against your personal records. If you see an error, contact the issuer of the 1099-K form with your concerns. It may be a system glitch or a mistake in your personal profile causing the error. Be prepared to provide details about the discrepancy, including the amounts and which transactions you think were incorrectly reported. A review of your accounts at third-party processors before the end of the year can reduce the chances of you and the IRS receiving an incorrect 1099-K form.
It’s worth knowing that payment platforms use your personal social security number, so if this isn’t listed correctly, the form could be incorrect. You should make sure the information you provide is correct.
How to handle these important changes to Form 1099-K
With more people likely to receive the form in the near future, expect there to be some confusion about how and when to include amounts reported on Form 1099-K on your tax forms. While the answer might seem pretty straightforward, how it plays out on tax forms may not be so simple.
To avoid costly errors on tax filings, do your part now to get transaction records in order so you know how much of your Form 1099-K amount to report as taxable income. The mixing of personal with business accounts can lead to many taxpayers needing to rely on their own records to file a correct tax return.
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