Payment Transactions and Form 1099-K
What Is Form 1099-K?
Form 1099-K is issued for third party network transactions by merchant acquirers and third party settlement organizations (TPSO) as a payment settlement entity (e.g. credit card company, Venmo, PayPal, Cash App). The Zelle® platform does not report payments to the IRS, nor does Zelle® issue a 1099-K. If a TPSO makes a third party network transaction and submits the instruction to transfer funds to the account of the participating payee to settle the reportable payment transaction, a Form 1099-K is issued. The TPSO may have contracted with an electronic payment facilitator or other third party payer to make payments to a taxpayer. Learn what to do if you received Form 1099-K.
If you as a taxpayer or business owner have received Form 1099-K, it is because:
- You accepted payments via credit cards or third party networks (e.g. Venmo, PayPal, Cash App, etc.) for gross payments for goods or services that exceeded $20,000 or at least 200 transactions.
- Important: The IRS ruling is planning to change these to $5,000 AND any number of transactions. This has been postponed and does not apply, but may apply to income beginning in 2024, to be determined by the IRS and federal government. Following the $5,000 limit, it is expected to be lowered further to $600 potentially in 2025.
- You are self-employed or have a business. Read this tax guide for business for more information
- You received payments related to your activities in the gig economy (e.g. run errands or complete tasks, drive a car for booked rides or deliveries, rent out property or part of said property, rent equipment, sell goods online, provide creative or professional services, provide other temporary, on-demand or freelance work).
- You sold personal items with a loss or a gain.
- If you sold a personal item at a loss, eFile can help you report if on Form 1040 and Schedule 1. Add this amount to Other Income on Schedule 1, Part 1 - Line 8z - Other Income with the description "Form 1099-K Personal Item Sold at a Loss."
- You received the form by mistake or with incorrect information (contact the issuer immediately to get this corrected).
- The Zelle® payment platform, used by many banks, does not report payments to the IRS, nor does Zelle® issue a 1099-K.
If you, likely as a self-employed person (contractor or gig worker), received payment via an online payment app for your service, you may receive a 1099-K. See how to add your business and income to your eFile account where you can add your 1099-NEC, 1099-MISC, and 1099-K income forms. eFile.com is up to 60% less than popular tax preparation platforms for the self-employed.
Form 1099-K Reporting Requirement
Expected to begin on January 1, 2024, a TPSO is required to report third-party network transactions paid during the year with any participating payee that exceed a minimum threshold of $5,000 in aggregate payments, regardless of the number of transactions. This is to phase into the $600 limit, possibly in the following year.
1099-K forms are information returns and must be furnished to the participating payees on or before January 31st of the year following the calendar year for which the return was made. These must be filed with the IRS on or before February 28th or March 31st if e-filed. As a recipient of a 1099-K, this is required to be filed with your 1040 individual income tax return - review Tax Day deadlines for individuals. Learn more about starting a business and keeping records.
When you prepare your taxes on eFile.com, you can simply enter some figures from your Form 1099-K and the tax app will calculate and report the information on the tax return.
IRS $600 Bank Surveillance
The IRS is not snooping through your bank account for payments or transactions of $600 or more. They are, however, planning to require that third-party money sending applications, like Venmo and CashApp, report total earnings of $600 or more by a single person. However, this has been delayed - the IRS is planning to change the limit to $5,000 in 2024 and then again to $600 in the following year, but nothing has been made official yet.
These will need to be reported on your taxes. Income from transactions you make on these apps may be subject to income taxes and will need to be reported on your return. The platforms will report this to the IRS, so you will need to do so as well, otherwise the IRS will issue you a notice regarding unreported income. This income will be reported on Form 1099-K.
This does not mean all transactions are subject to taxes; the tax is only for qualifying transactions for business activity or income from selling property. The following table details what transactions may be taxable and what may not be.
I sent money to my friend for paying for dinner.
This income is not reported to the IRS. If you send or receive money over a third-party application to reimburse someone's expenses for dinner or other nonbusiness activity, then this is not reported to the IRS.
I sold my property or collectible on eBay, Facebook Marketplace, private sale via Venmo, etc.
This income may be reported to the IRS
. If you generate income from your sale, you may need to report this in your return if you make a significant gain. See details on capital gains and sale of collectibles
I collected income on PayPal, CashApp, etc. for my side gig by performing services.
This income is reported to the IRS
. Since this is business income, it is required to be reported to the IRS and self-employment taxes will be applied. See details on self-employment income
I sent money as a gift for someone's graduation, birthday, etc.
This income may not be reported to the IRS.
This type of exchange is only subject to gift tax
if it exceeds certain amounts. Generally, most gifts of cash are not required to be reported and they are personal exchanges of money, not for business purposes.
I split rent or electricity with my roommate over Venmo, CashApp, etc.
This income is not reported to the IRS. As a personal transaction between two private parties, this is not reported to the IRS and you should not get a 1099-K.
If you wrongly receive a 1099-K for income that was not supposed to be reported, you can request a new form from the issuer or report it on your return as wrong. Most apps have an option to toggle whether you are sending money for personal use or business use.
Verify What Is Reported on Your Form 1099-K
If you have received 1099-K and are unsure of what to do with it, refer to the points below before you file your taxes online with eFile.com.
- Once you have received Form 1099-K, compare the amount listed on the form with your payment card receipt records and merchant statement(s).
- Check if the Taxpayer Identification Number or TIN is correct and if the Merchant Category Code (MCC) describes your business correctly. The TIN may also be an SSN or EIN (Employer Identification Number).
- Review your records to ensure your gross receipts are accurate and reported correctly when you prepare your tax return on eFile.com.
- Verify whether you have reported income from all forms of payment received, including cash, checks, debit, credit, and stored-value card transactions.
- Maintain records and documentation that support both the income and deductions you report on your tax return.
How to report Form 1099-K on your Tax Return
Ask yourself is your 1099-K based on business, or hobby income or the result of the sale of a personal item?
Personal Item: Report it under Other Miscellaneous Income (not 1099-MISC) in the eFile.com tax app and add description that you sold a Personal Item at a gain or loss.
Hobby Income: You’ll report your gross hobby income on Schedule 1 as part of the 1040, and include the Form 1099-K’s issuer’s name and EIN. Please use the Misc. Income page on eFile.com to enter hobby income.
Business income: If you’re are part of the gig economy, sole proprietor or an independent contractor, you’ll report the 1099-K income via Schedule C Self Employment (Form 1040), line 1 and any returns or allowances on Schedule C, line 2. Additionally, you must calculate the cost of goods sold and report that on Schedule C, line 4. Then deduct associated business expenses in Part II of Schedule C.
Have your 1099-K and all other tax forms handy when you sign into your eFile account. Work through the tax interview and file your taxes online for free or at an affordable price.
See a list of other 1099 forms you might receive for a given tax year.
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