The 1099-K form is an information return used to report payment transactions to the IRS. It is filed by payment settlement entities such as payment card processors and third party settlement organizations to report payments made to payees for goods and services. So if you have received a 1099-K, does this mean you need to report it?
Who must file a 1099-K?
The 1099-K form must be filed by third party payment networks such as:
- Payment card processors – Visa, Mastercard, American Express, Discover
- Third party settlement organizations – PayPal, Square, Stripe
- Online marketplaces – eBay, Etsy, Amazon Marketplace
- Rental platforms – Airbnb, VRBO, Vacasa
These entities are required to file 1099-K forms for payees if they process over $20,000 in gross payments and over 200 transactions in a calendar year. This requirement was added by the Housing Assistance Tax Act of 2008 to help close the tax gap on small business income reporting.
Which payees receive a 1099-K?
1099-Ks are sent out to payees who meet both of the following criteria:
- Received over $20,000 in gross payments for goods/services
- Received over 200 transactions for goods/services
So if you are an individual or business that processes payments through a third party processor, you may receive a 1099-K if you meet these thresholds.
Is a 1099-K required to be reported?
Yes, amounts reported on a 1099-K are required to be reported on your tax return. The IRS receives copies of all 1099-Ks filed, so they will be looking to match what is reported on your return.
The amounts shown on your 1099-K should be reported on Schedule C (Form 1040) for sole proprietors or on the appropriate business income tax return such as Form 1120 for corporations. The income should be recorded as Gross Receipts or Sales.
Can I deduct expenses from 1099-K amounts?
Yes, you can deduct any eligible business expenses from the gross receipts amount shown on your 1099-K. This will reduce your taxable business income. Make sure you maintain thorough records of any expenses you claim.
Examples of deductible business expenses include:
- Cost of goods sold – materials, packaging, printing, shipping
- Car and truck expenses from business driving
- Advertising and marketing costs
- Credit card fees
- Office supplies
- Legal and professional services
- Rent for business property
- Utilities and telephone expenses
What if I didn’t receive a 1099-K?
Just because you did not receive a 1099-K does not mean you do not have to report your income from payment processing transactions. You are still required to report all taxable income, regardless of whether you received a 1099 form or not.
The $20,000 and 200 transaction thresholds mean many payees who should be reporting income may not receive a 1099-K. It is your responsibility to keep track of your own records and report your income accurately.
How does a 1099-K differ from a 1099-MISC?
The 1099-MISC form has traditionally been used to report various types of independent contractor income. So how does it differ from the 1099-K?
- The 1099-MISC is filed by the business paying for services, rather than a third party processor.
- 1099-MISC may be issued regardless of dollar amount and is not restricted to over 200 transactions.
- Common payments reported on 1099-MISC include non-employee compensation, rents, royalties, etc.
- 1099-K strictly reports payment card and third party network transactions.
Many payees receive both 1099-MISC and 1099-K forms if they have multiple income streams from clients as well as processing payment card transactions.
Do I need to report both a 1099-K and 1099-MISC?
If you receive both a 1099-K and 1099-MISC, you must report the amounts shown on both forms. Each amount should only be reported once on your tax return to avoid double counting the income.
For example, if you received $45,000 on your 1099-K and $12,000 on your 1099-MISC, you would report $57,000 in gross income ($45,000 + $12,000).
What are the due dates for 1099-K reporting?
There are specific due dates that apply to 1099-K forms for filing and reporting:
- January 31 – Deadline for payment settlement entities to file 1099-Ks with the IRS.
- February 15 – Deadline for payment settlement entities to send copy B of 1099-Ks to payees.
- April 15 – Deadline for individual taxpayers to report 1099-K amounts on their tax return (Form 1040).
- April 15 – Deadline for business taxpayers to report 1099-K amounts on income tax returns such as Form 1120, 1065, etc.
Failure to meet the filing, reporting, and furnishing deadlines may result in penalties unless reasonable cause can be shown.
How can I get a copy of a missing 1099-K?
If you have not received your Form 1099-K by the mailing deadline of February 15, you should request a copy from the payer. Some ways to request a duplicate 1099-K include:
- Contact the payer by phone – Call their customer service line and request a duplicate.
- Online account – Check if you can get the form in your payer’s online portal.
- Email/letter – Send a written request for a duplicate 1099-K.
- Tax records – Review any tax statements provided by the payer.
The payer is required to furnish a copy upon request if they have already filed it with the IRS. If unable to get a duplicate from the payer, you can contact the IRS for a tax transcript showing any income reported under your tax identification number.
Sample letter requesting duplicate 1099-K
Below is a sample letter you can customize to request a duplicate copy of your 1099-K from the payer:
[Date]
[Payer name and address]
Re: Request for Duplicate Copy of Form 1099-K
Dear [name],
I am writing to request a duplicate copy of the Form 1099-K filed under my name and Taxpayer Identification Number [SSN or EIN] for tax year [2022]. I have not received this form and it is required for me to file my 2022 tax return.
Please provide a copy of the 2022 Form 1099-K issued to me as soon as possible. It can be sent to me by email at [your email] or mailed to my address below.
If you have any questions, please contact me at [your phone number]. Thank you for your assistance in this matter.
Sincerely,
[Your name]
[Your address]
Penalties for failure to file and furnish 1099-K
Strict penalties apply if a business required to file 1099-Ks fails to correctly file and furnish the forms on time. The penalties consist of:
- Failure to file – Penalty of $250 per information return if filed within 30 days of the due date. Up to $550 per return if filed more than 30 days after the due date or not filed at all (limited to $3,339,000 per calendar year).
- Failure to furnish – $250 penalty for each statement not furnished on time to the payee (limited to $3,000,000 per calendar year).
- Intentional disregard – Increased penalty of $550 per return (no annual maximum limit).
It is crucial for payers to correctly meet the filing and furnishing deadlines to avoid large penalties. Request an extension of time to file if needed to avoid failure to file penalties.
How to report 1099-K business income
If you receive a 1099-K for business income, here are some tips on how to report it correctly:
Sole proprietor
- Report on Schedule C (Form 1040)
- List as gross receipts/sales income
- Deduct related business expenses
Single member LLC
- Report on Schedule C (Form 1040)
- LLC income pass-through to sole owner
- List as gross receipts/sales income
- Deduct related business expenses
Partnership or multi-member LLC
- Report on Form 1065
- Income flows through to K-1s
- Partners/members report on individual return
- List as gross receipts/sales income
- Deduct related business expenses
Corporation
- Report on Form 1120
- List as gross receipts/sales
- Deduct related business expenses
- Net income flows to Form 1120
Consult an accountant or tax professional for help reporting 1099-K business income on the proper tax forms.
Conclusion
Receiving a Form 1099-K does indicate you need to report the income shown on the form. The amounts should be included as gross receipts and any eligible business expenses can be deducted. Payees are responsible for reporting their taxable income from payment card and third party transactions even if a 1099-K was not received. Use the correct business tax forms such as Schedule C, 1065 or 1120 to report 1099-K amounts. Be sure to obtain any missing 1099-K forms to ensure accurate tax filing.