true
TurboTax Live Assisted Basic
File 100% FREE with expert help: Get live help from tax experts, plus a final review before you file — all free.
Simple tax returns only.
See if you qualify. Must file by 3/31.
Get started
Top
  1. TurboTax /
  2. Tax Calculators & Tips /
  3. Tax Tips Guides & Videos /
  4. IRS Tax Forms /
  5. Form 1099-K Decoded for the Self-Employed

Form 1099-K Decoded for the Self-Employed

Updated for Tax Year 2022 • December 1, 2022 08:13 AM


OVERVIEW

The IRS Form 1099-K tracks income received through third-party payment methods, like credit credits, PayPal, and other payment services. Here’s what you need to know about this form and how to avoid any surprises come tax season.


Customer paying with her phone at a local shop

1099-K: The Basics

Tax season requires some planning and organization for everyone, and that’s especially true when you’re self-employed. On top of tracking business-related expenses, you’ll likely need to track income streams from several clients.

Form 1099-K tracks payments you’ve received through a payment settlement entity, or PSE. That includes tracking payments made via:

  • Credit cards
  • Online payment services like PayPal
  • And even freelancing platforms like Upwork that manage client payments for you.

Form 1099-K shows the value of the transactions the PSE has processed for you in the past year, as well as any expenses paid on your behalf by your clients. Even if you are not self-employed or own a small business, you can still get a Form 1099-K.

The IRS requires each payment settlement entity to send you a Form 1099-K by January 31 to business and individuals that surpassed the threshold for the year. For tax years prior to 2022, the threshold is payments totaling at least $20,000 and at least 200 transactions. For tax years starting with 2022 and going forward the threshold is simply $600 in payments without any consideration to the number of transactions.

But you still could receive 1099-Ks from some PSEs even when the form isn’t required by the IRS. Many PSEs send 1099-Ks to all their vendors, even if they’ve only processed a handful of transactions and fall well short of the threshold.

Using the 1099-K Form to Prepare Your Taxes

You’ll need to keep all of your 1099-K forms to prepare for tax time, since each form reports a portion of your self-employment income for the year. Use the information on your 1099-Ks along with your other books and records to determine your annual income. But remember that just because you did not receive a 1099-K form doesn’t mean that you don’t have to report all of the income that you received.

If you’re a solopreneur or sole proprietor, your 1099-Ks count toward your self-employment income, which is subject to the self-employment tax. Record the information from your 1099-Ks as income on your Schedule C.

If your client pays some expenses on your behalf—for example, processing fees deducted even before payment reaches you—your 1099-K should include those expenses, reporting an income higher than you actually received. Don’t worry. You can deduct those fees as business expenses on your Schedule C so your tax liability will accurately reflect your income.

Don’t Mix Business with Personal Finances

Payment settlement entities (PSEs) can’t distinguish between business payments and personal payments, so you should not mix the two. Make sure you do not accept payments for personal expenses on the same accounts you use for business expenses.

For example, let’s say a relative wants to send you $100 for your birthday and uses your credit card reader to do it. The PSE can’t tell that it’s a personal gift instead of a business transaction. As a result, the gift is included in the total shown on your Form 1099-K.

While you don’t have to claim that gift as income, any discrepancies between the income reported on your 1099-Ks and the income you report to the IRS may send up red flags, potentially triggering an audit. Avoid the headache by using your business PSEs for business transactions only.

With TurboTax Live Full Service Self-Employed, work with a tax expert who understands independent contractors and freelancers. Your tax expert will do your taxes for you and search 500 deductions and credits so you don’t miss a thing. Backed by our Full Service Guarantee. You can also file your self-employed taxes on your own with TurboTax Self-Employed. We’ll find every industry-specific deduction you qualify for and get you every dollar you deserve.

Self-employment taxes done right

Let a tax expert do your taxes for you with Live Full Service Self-Employed.

Backed by our Full Service Guarantee

Taxes done right for freelancers and gig workers

TurboTax Self-Employed searches 500 tax deductions to get you every dollar you deserve.

Looking for more information?