What Is A 1099-K Form?
The 1099-K form allows the IRS to keep a record of all payments you receive from payment card transactions, including debit, credit, and gift cards. It also records third-party payment network transactions that meet certain reporting thresholds, which are gross payments exceeding $600 and over 200 transactions. In other words, the 1099-K form reports the gross amount of all reportable payment transactions. You should receive your 1099-K form by January 31.
NOTE: The gross payment threshold (as of 2022) is $600, which is a big change from prior years, when it was $20,000. Make sure you or your accountant are aware of this change.
Who Files a 1099-K form?
Credit card companies and third-party processors like PayPal, Etsy, eBay, and Amazon are required to report the transactions they process for retailers. They report these transactions by filing a 1099-K form with the IRS and sending the retailer (you) a copy.
Credit card companies are required to file a 1099-K form for all payment card transactions.
Third-party settlement organizations are required to file a form 1099-K for your business if you process more than $600 in transactions per year, and over 200 transactions total. Note that these minimums are PER PROCESSOR, not your total transactions.
For example, if you have an ACH merchant account through which you process 100 transactions for a total of $10,000, and a credit card merchant account through which you process 150 transactions for a total of $15,000, you will receive a 1099-K from the credit card processor but not the ACH provider.
If you process 200 $100 transactions via PayPal, then you will receive a 1099-K from PayPal. If you process 100 $5 transactions via PayPal and 100 $5 transactions via Google Checkout, you will not receive a 1099-K from either provider.
The 1099-K form can be delivered electronically if you authorize it. The 1099-K form must also be accompanied by a statement breaking down your transactions by month.
What Is A 1099-K Form Used For?
The 1099-K form is used to make sure online retailers are reporting sales for tax purposes. Essentially, it is an accountability tool used by the IRS to ensure online retailers are not under-reporting their sales and income.
How To Report the 1099-K For Small Business
While it may seem overwhelming, the reporting requirements of a 1099-K form are pretty straightforward. If you have a small business that operates under a sole proprietorship, you will report the income listed on your 1099-K form on your Schedule C on a separate revenue line. If you have multiple 1099-K forms you may want to wait until after January 31 to ensure you’ve received all the forms and don’t accidentally overlook something.
Make sure your business income reflects the accurate amount of money you received. You must account for online transactions (as listed on your 1099-K forms) as well as income received in the form of cash and checks.
You may not receive 1099-K forms for all the online transactions that your business processed throughout the year. If that happens, it is still important to report the total income your business brought in through various payment forms to avoid being audited.
You could also have income double reported on multiple 1099-K forms. In some cases, such as if you are sharing a credit card processing terminal with another business owner, the 1099-K form may reflect more income than you would claim on your taxes. Thus, it is important for you to accurately track your business income and not rely on getting the 1099-K forms from various companies as your sole way of tracking your online business revenue. Having good business records is vital to running a small business so you can accurately track the profitability of your business as well as show proper documentation to the IRS in case you get audited.
What’s the difference between the 1099-K form and the 1099-MISC form?
Credit card companies and third-party processors are required to send 1099-K forms to report bank card income. 1099-MISC forms, on the other hand, are sent by any business that pays an independent contractor $600 or more in a given year.
Tax forms can be confusing, and it may be challenging to understand what forms and receipts you need to keep and give to your accountant. Here is a simple breakdown of the forms and IRS receipts you need to save each year. If you feel overwhelmed, find a good accountant.
Filing taxes in general can be stressful, especially as a small business owner. Check out our guide to managing business taxes for more help.
You may also want to consider streamlining your tax filing process by connecting your payment and accounting softwares. The PaySimple integration with Quickbooks does just that, delivering time-saving efficiencies to businesses during filing season. Schedule a personal demo to learn more.
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