What is Form 1099-K?
Note: IRS delays the rollout of the $600 threshold for 1099-K reporting.
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The threshold for Form 1099-K remains at $20,000 with a 200 transaction limit for the year 2023. This delay designates 2023 as a transition period, maintaining the existing requirements for reporting.
Form 1099-K, Payment Card and Third-Party Network Transactions is an IRS (Internal Revenue Service) form used to report credit/debit card transactions and third-party network payments. Minimum transaction reporting thresholds have decreased for third-party network transactions from $20,000 plus 200 transactions in years prior to 2023 to $600 without regard to the number of transactions for years 2023 and after. This change in the reporting threshold will make several smaller business owners, self-employed individuals, gig workers, freelancers, and independent contractors more likely to receive 1099-K forms compared to previous years. There is no threshold for payment card transactions.
If you’re self-employed or work as an independent contractor, you typically report your income, including that from forms 1099-K, one Schedule C of your Form 1040, individual income tax return. If your business is organized as a pass-through entity like a multi-member LLC, LLC electing to be treated as a corporation, S Corp or Partnership, you’ll need to report this information on your Form 1120, 1120S or 1065.
What is the purpose of a 1099-K?
IRS Form 1099-K came into existence as part of the 2008 Housing and Economic Recovery Act—even though it has nothing to do with housing. This form was created in 2012 for the 2011 tax year to ensure that individuals and businesses report all their income for tax purposes. It requires credit card companies, such as MasterCard and Visa, and third-party processors, such as PayPal and Amazon, to report the payment transactions they process for businesses. Therefore, if you accept credit card or electronic payments, you may end up with a 1099-K at the end of the year from each payment processor that summarizes all your sales transactions.
Who gets a 1099-K?
Most retailers and businesses that accept online credit card payments and other electronic payments from customers will receive a 1099-K if its annual processing activity has met the following guidelines:
- For years prior to 2023, if you have received payments through a third-party processor over $20,000 AND if there were more than 200 individual transactions.
- For these same years, in limited instances: If the transaction volume is over $600 per year or any amount for payment card transactions such as credit card swipes.
- For years 2023 and onward, if you have received a total of payments through a third-party processor exceeding $600 and ANY quantity of transactions
If you have met these criteria, you should receive a copy of the 1099-K in the mail by January 31 of the following year. The IRS will also receive a copy of all the 1099-K forms that are issued to you. If you believe you should have received a 1099-K and haven’t received one by that date, consider contacting the processor to find out if one has been prepared for you. If the processor didn’t prepare a 1099-K, you still need to report all of your income.
What is the 1099-K threshold for 2022?
You should receive Form 1099-K by January 31, 2023 for the 2022 year if you received payments:
- Originating from payment card transactions (for example, debit, credit, gift, or prepaid cards), and/or
- When payment settlements occur for third-party payment network transactions on platforms like Venmo; gig-worker platforms like Uber and Lyft; or online marketplaces connecting independent sellers to customers like eBay or Etsy, above the following thresholds:
- For returns for calendar year 2022 and earlier:
- Gross payments exceeding $20,000, and
- More than 200 transactions
What is the 1099-K threshold for 2023?
Through the American Rescue Plan Act, Congress sharply reduced the reporting threshold for which third-party payment networks are required to issue a Form 1099-K to $600 and eliminated the transaction quantity requirement. The changes became effective for calendar years beginning after December 31, 2022.
As a result, more workers and sellers will likely receive 1099-K forms than before for reporting years 2023 and afterward. The law also clarified that only payments made for the purchase of goods and services are reportable third-party network transactions.
The new 1099-K threshold for 2023 and afterward is:
- Gross payments exceeding $600, and
- Any number of transactions
Beware of accepting nontaxable payments via card or payment network
If you use a credit or debit card reader or third-party app such as PayPal in your business, you should avoid using it for non-business purposes. If you do, these payments will most likely be included with your other payments received for your business and show up on your Form 1099-K unless the payment processor has a system for separating business and personal transactions for you.
For example, if you split costs with a family member, roommate or other non-business acquaintance through a cost-sharing situation, you wouldn’t want to use your business payment card reader to get paid for these items. The payment settlement entity likely wouldn’t be able to differentiate the business payments from the non-business payments. These payments received for splitting costs with someone generally aren’t considered taxable income. These are typically considered non-taxable payments and shouldn’t be reported on your tax return as income.
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