IRS Form 1099-K: What Business Owners Should Know
Expect to receive a 1099-K form for the 2024 tax year if you run a business that accepts credit, debit, or gift card payments, or receives more than $5,000 in payments through a payment app (like PayPal or Venmo) or online marketplace (like Etsy or eBay). The payments reported on the form are used to complete your tax return for the year, but only profits from the related sales are actually taxed.
Key Takeaways
- Form 1099-K is an IRS information return that reports payments you received from payment card processors, payment apps, and online marketplaces for the sale of goods or services.
- For the 2024 tax year, a 1099-K form must be sent if the payments you receive from a payment app or online marketplace exceeds $5,000, or if you receive any amount as payments from a payment card processor.
- You should receive any 1099-K forms for a tax year by January 31 of the following year (for example, forms for the 2024 tax year are due by January 31, 2025). The forms are typically mailed to you, but some payers make them available online.
- The total amount of payments you receive from a payer are reported on Form 1099-K, but you typically only have to pay tax on any profits from the related sales of goods or services.
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What is a Form 1099-K?
Form 1099-K, Payment Card and Third-Party Network Transactions, is an IRS form used to report certain payments you received from a payment app, online marketplace, or other payment processor during the tax year.
So, if you’re a business owner accepting credit card, debit card, gift card, or other electronic payments from customers – basically, payments other than by cash or check – you need to be familiar with 1099-K forms. That’s because you’ll need the form and the information provided on it to file your federal income tax return for the year.
What is the purpose of a 1099 form?
Form 1099-K is a type of information return, which is used to report certain financial transactions to the IRS. Sending information about financial transactions to the IRS helps ensure that individuals and businesses report all their income for tax purposes.
Many information returns are “1099 forms” – like Form 1099-K. These forms generally report payments from one party to another. The party sending the payments (the payer) is typically responsible for sending the 1099 form.
However, whoever is required to send a 1099 form to the IRS also has to provide a copy of the form to the party receiving the payments (the recipient). So, for example, if you’re receiving payments reported to the IRS on a 1099 form, you’ll also receive a copy of the form from the payer. In some cases, a copy must also be sent to the state tax agency where you live.
Who gets a 1099-K?
You might get a 1099-K if you received payments for the sale of goods or services during the tax year from any of the following:
- credit, debit, gift, or other payment card processors (like MasterCard, Visa, a bank, or retailers providing gift cards)
- payment apps (like PayPal or Venmo)
- online marketplaces (like eBay or Ticketmaster)
However, for the 2024 tax year, a payment app or online marketplace is only required to report payments exceeding $5,000 for the year – although they can send you a 1099-K form if you’re paid a lesser amount. For instance, the payer might send you a 1099-K form if your state has its own 1099-K reporting requirement with a threshold that’s lower than the federal amount.
There’s no 1099-K threshold for payments received from a payment card processor. So, if you accept credit, debit, or gift card purchases from your customers or clients, you should receive a 1099-K form regardless of how much you received.
You might also get a 1099-K form if you receive payments from any of the payers listed above and you’re subject to backup withholding.
Also, if you accept payments on different platforms, you could get more than one 1099-K form.
Sale of goods and services. The 1099-K filing requirements are only triggered if the payments you receive are related to the sale of goods or services. This includes payments you receive for the sale of personal items, such as clothing, furniture, jewelry, tickets, and the like. If you receive payments from one of the payers listed above for providing a service as a side gig – such as ridesharing, cutting hair, delivery food, or babysitting – you can receive a Form 1099-K, too. Receiving payments from one of these payers for renting property can also trigger a 1099-K form.
However, you shouldn’t receive a 1099-K for personal payments from family and friends, since they’re not payments for goods or services. So, for example, if a friend reimbursed you for a meal through PayPal, or your parents sent you some cash for your birthday through Venmo, those payments shouldn't be reported on Form 1099-K. (Ask the sender to mark these types of payments as non-business payments in the app if possible.)
TurboTax Tip:
If you use a credit or debit card reader or third-party app such as PayPal in your business, avoid using it for non-business purposes. If you do, the personal payments will most likely be included with your business payments and show up on your Form 1099-K, unless the payment processor has a system for separating business and personal transactions for you.
When and how do you get a 1099-K form?
If you’re getting a 1099-K form for the tax year, you should receive it by January 31 of the following year. For example, 1099-K forms for the 2024 tax year are due by January 31, 2025. If January 31 falls on a weekend or holiday, the deadline is pushed back to the next business day.
Many payment card processors, payment apps, and online marketplaces will make Form 1099-K available online if you prefer an electronic version of the form. Otherwise, you’ll receive a printed copy of the form in the mail.
If you’re expecting a 1099-K and haven't received one by the due date, contact the payer to find out if a form has been prepared for you.
How are 1099-K payments taxed?
You generally must report all income on your federal income tax return, unless it’s specifically exempt from tax by law. That includes payments you receive from payment card processors, payment apps, and online marketplaces. In fact, those payments generally need to be included on your return whether or not they’re reported on a 1099-K form.
However, if you do receive a 1099-K form, the “gross amount of payment” reported on the form might include certain non-taxable items, such as:
- fees you paid
- credits to your account
- refunded amounts
- shipping costs you paid
- discounts for customers
As a result, you can subtract these items from the gross payment amount when filing your tax return.
In addition, you typically only have to pay tax on the profits (if any) from the sale of goods or services. So, for example, if you get a 1099-K form reporting $10,000 of payments to you, that doesn’t necessarily mean all $10,000 will be taxed – only the profits from the related sales will be taxed. But how you determine your profits and how you treat a loss depends on whether your sales are business transactions or personal transactions.
If you’re running a business, you can deduct certain business expenses – including your cost for goods you sold – from your business income when calculating any profit. And if you have a loss, it can offset gains from other business transactions and reduce your overall tax bill.
On the other hand, if you’re simply selling personal items (not as a business), you can generally deduct the amount you paid for them from the amount you received for selling them to figure any profit. However, if you’re not running a business, you can’t deduct any traditional “business expenses” – but you can still subtract fees, credits, refunds, shipping costs, and discounts from the gross payments reported on Form 1099-K. Any profit will be taxed as a capital gain, which means the tax rate applied to your profits will typically be lower. If you have a loss, you won’t end up with taxable income – but since losses on the sale of personal items aren’t deductible, you can’t use it to lower your tax bill, either.
How do you report 1099-K payments on your tax return?
If you’re self-employed, have a side gig, or are otherwise operating a business taxed as a sole proprietorship, report your income – including payments reported on 1099-K forms – on Schedule C of your individual income tax return. That’s where it will be combined with other business income, and expenses will be deducted, to determine your business profit or loss. The resulting profit or loss will eventually be carried over to your Form 1040.
If your business is taxed as a pass-through entity – such as an S corporation or partnership – any 1099-K payments are reported on Form 1120-S or Form 1065. Your proportional share of the business’s profit or loss will ultimately be reported on your personal income tax return (Form 1040).
Businesses taxed as a C corporation report 1099-K payments on Form 1120. The business itself will pay any tax due (it won’t be carried over to the business owners’ personal income tax returns).
If you receive a 1099-K form for payments you received for the sale of personal items, report any profit from the sale on Form 8949, which will carry over to Schedule D and then to your 1040 form. Although a loss from the sale of personal items won’t result in taxable income and isn’t deductible, it still needs to be reported on Schedule 1 (there’s a line for this at the top of the form), or on Form 8949 using the appropriate code in Column (f) (a loss reported on Form 8949 will carryover to Schedule D). If you have a mix of profitable sales and losses, separate the sales for a profit and sales for a loss before reporting them on Form 8949 and/or Schedule 1.
1099-K vs. 1099-NEC vs. 1099-MISC
Freelancers and other independent contractors typically receive one or more 1099 forms each January reporting income they received during the previous year. This includes 1099-K, 1099-NEC, and 1099-MISC forms. While these forms may seem similar, they actually report different types of payments.
As already noted, Form 1099-K is used to report payments you receive from payment card processors, payment apps, and online marketplaces for the sale of goods or services. For 2024, payers are required to send a 1099-K to you and the IRS if you received more than $5,000 in payment from them.
On the other hand, Form 1099-NEC is used to report compensation paid to someone who isn’t an employee for services rendered during the tax year (Form W-2 is used to report compensation paid to employees). A business has to file a 1099-NEC form if it pays a worker who isn’t an employee (like a freelancer) $600 or more during the year. If you get a 1099-NEC form for work that’s paid through a payment processor, you might also get a 1099-K form for the same payment – but you don't have to report it twice.
Several different types of payments are reported on Form 1099-MISC (the “MISC” part of the form name stands for miscellaneous). Among other things, it’s used to report at least $600 of payments you received during the year in:
- rent
- prizes or awards
- fishing boat proceeds
- medical and health care payments
- crop insurance proceeds
- attorney fees
It’s also used to report at least $10 in royalty payments to you.
1099-K vs. K-1
There’s occasionally some confusion with 1099-K forms and Schedule K-1 forms. While they both have a “K” in their name, these two forms report different types of income.
Once again, a 1099-K is used to report the payments you receive during the year for the sale of goods or services. They come from payment apps, online marketplaces, and companies that process credit, debit, and gift card payments.
A Schedule K-1 is a form that reports income, losses, tax deductions, tax credits, and other items that are passed through to you from an S corporation, partnership, limited liability company, trust, or estate. The amounts reported on a Schedule K-1 sent to you ultimately get reported on your personal income tax return.
How to correct information on a 1099-K form
What if you receive a Form 1099-K that doesn’t belong to you or includes an incorrect gross payment amount?
Your first move should be to check your own records against the information reported on the 1099-K form. If the information on the 1099-K doesn’t match your records, contact the person or business that issued the form and ask for a corrected form (their telephone number should be on the form).
But don’t miss the deadline for filing your tax return because you’re waiting for a corrected form. Go ahead and file your return using the correct information. Just make sure you have sufficient documentation to show that the amounts you report on your return are correct. Also keep any correspondence between you and the payer about your request. Remember, the IRS will have a copy of the original 1099-K and might question why the information on your tax return is different.
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