Form 1099-K reports earnings from payment cards and third-party network transaction providers. This new change could impact your business if you sell online through Square, Etsy, eBay, and others.
What is Form 1099-K?
Form 1099-K is an official Internal Revenue Service (IRS) document called “Payment Card and Third-Party Network Transactions.” Payment processors use this form to help the IRS and businesses prepare accurate annual tax returns.
The form includes information about the payment processor and the company receiving payments, and a monthly breakdown of total payments, among other information. You can view a blank version of the form here (PDF).
Before 2022, businesses would generally receive a 1099-K tax form only when gross payments exceeded $20,000 for the year and the business conducted at least 200 transactions. As of the 2022 change in rules for the 1099-K, the gross payments reportable amount has been lowered to just over $600 for the year, and there is no minimum number of transactions. This means as of 2022, businesses must report all income received for “goods and services” over $600, and again, there is no longer a requirement of a minimum number of transactions for the amount to be reportable with a 1099-K.
If you are accepting transactions using the following services (or any other similar third-party payment processing services), you may need to file a 1099-K this year:
- Cash App
- PayPal
- Stripe
- Square
- Venmo
- Zelle
The new ruling also affects platforms like Etsy, Uber, Airbnb, E-Bay, Upwork, and others that provide settlement services for self-employed workers.
What Should I Do as a Small Business Owner?
If you are self-employed, report your 1099-K payments on Schedule C as part of your gross receipts. Depending on your filing status, you use Schedule E or F instead. Make sure the amount shown on your 1099-K accurately reflects payments you received for your business, and do not forget to track any deductions for refunds, discounts, exchanges, or other transactions that reduce the gross number, as you will report those on a separate line in your tax return.
If you use a full-time accountant, bookkeeper, or tax preparation service, make sure to forward this form along, as they will need the 1099-K to double-check that your taxes are correct, even if they’ve been keeping your books updated monthly throughout the year.
And we always recommend that you keep your business and personal funds separate so that if you are paying a friend for dinner or sending someone a gift, these transactions are not added to your income.
You may find these additional links helpful:
https://www.irs.gov/pub/irs-pdf/i1099k.pdf
https://www.irs.gov/payments/form-1099-k-frequently-asked-questions