Payment Transactions and Form 1099-K
Important: On December 23, 2022, the IRS announced a delay in reporting thresholds for third-party settlement organizations set to take effect for the 2023 tax filing season. As a result of this delay, third-party settlement organizations (TPSOs) will not be required to report tax year 2022 transactions on a Form 1099-K to the IRS or the payee for the lower, $600 threshold amount enacted as part of the American Rescue Plan of 2021. In other words, if you use apps like Venmo or Cash App to receive payment for your business, you can still receive up to $20,000 before you are issued a tax form. The existing 1099-K reporting threshold of $20,000 in payments from over 200 transactions will remain in effect. This delay is intended to facilitate an orderly transition for TPSO tax compliance, plus individual payee compliance with income tax reporting.
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). 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.
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 to change these to $600 AND any number of transactions has been postponed and does not apply.
- 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).
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
Important: the below information was made public by the IRS in late 2021 and early 2022. However, on December 23, 2022, the IRS stated that they are postponing the below requirement for 2022. The rules below may apply to 2023 and/or future tax years; we will keep this page updated with the details.
Beginning January 1, 2023, a TPSO is required to report third-party network transactions paid during 2022 with any participating payee that exceed a minimum threshold of $600 in aggregate payments, regardless of the number of transactions.
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.
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 income or hobby income?
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.
Business income: If you’re are part of the gig economy, sole proprietor or an independent contractor, you’ll report the 1099-K income on Schedule C (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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