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So what is a 1099-k anyway?
If your small business processes lots of debit or credit card payments, you will receive a copy of 1099-K in the mail from your payment settlement entity (Stripe, PayPal, Amazon Payments, etc.). If you got one, it means the IRS did too, and it means your payment settlement entity (a fancy way of saying payment processor has started reporting your card payments to the IRS.
Why did I receive a Form 1099-K?
As part of the American Rescue Plan Act of 2021, the conditions under which you receive a Form 1099-K have changed.
Payment settlement entities (PSEs) now have to file Form 1099-K (and send you a copy) by January 31st if you received gross card payments that exceeded $5,000 over the last calendar year. This is considerably lower than the original threshold of $20,000.
With the change in rules, lots of smaller sized businesses will receive this form for the first time. The good news? It’s a simple form and we’re here to help you understand what to do with it.
1099-k $600 threshold delayed
In December 2024, the IRS has delayed the new $600 Form 1099-K reporting threshold for third-party settlement organizations. Under the most recent guidance, third-party settlement organization reporting will only be required if the taxpayer receives over $5,000, regardless of the number of transactions in 2024. The dollar value will scale to $2,500 for transactions in 2025 before hitting the $600 threshold in 2026 and after.
That should mean that you will not receive Form 1099-K unless you hit the existing transaction threshold for 2024—an exception exists for taxpayers subject to backup withholding. It’s worth noting, however, that it’s not unlikely that some Form 1099-K reporting threshold companies could still send the form for totals above $600 when year-end forms are sent out in January 2025—there’s no need to panic if you receive a form, as that doesn’t change the tax treatment.
Why are the Form 1099-K thresholds changing?
As more people start side businesses, the IRS found that many income earners were omitting or miscalculating their self-employment income. By lowering the 1099-K threshold, the IRS is more likely to catch mistakes on the tax returns of the self-employed. This makes solid reporting and bookkeeping more important than ever. If bookkeeping has been on your backburner, Bench can help. Once you connect your bank, credit card, and merchant accounts, we automate your monthly financial reporting so you don’t have to worry about it.
What is 1099-K used for?
Form 1099-K is what’s called an informational return. It isn’t used to file your taxes—instead, it provides information to either complete your tax return or confirm the information reported.
Form 1099-K includes the gross amount of all reportable payment transactions made through your payment settlement entity and is mainly used for tax compliance. By ensuring that the numbers on 1099-K match the business income you’re reporting on your Schedule C, the IRS can confirm you’re accurately reporting your business activity on your income tax return.
This is why payment processors ask payees for a Taxpayer Identification Number (TIN) when they first sign up for the service—it allows them to provide you with 1099-K forms at year-end.
What does it look like?
Form 1099-K (or Payment Card and Third Party Network Transactions) is a 1-page long IRS tax form with five copies: Copy A, Copy 1, Copy B, Copy 2, and Copy C. Copy A looks like this:
Your payment processor is responsible for filling out each copy of the form and providing it to the right people. They send Copy A to the IRS and Copy 1 to your state tax department. Copy B and Copy 2 are then provided to you, the payee, to use when filing your federal and state income tax returns respectively. Then the payment processor holds onto Copy C for their own personal records.
What is 1099-K income?
1099-K income is any credit card, debit card, or stored value card (e.g., gift card) income your business earns that is processed by a payment settlement entity like PayPal, Stripe, or Square. These are sometimes also referred to as “third-party settlement organizations,” “TPSOs,” or “third-party payment networks.”
For example: if you run a memorabilia reselling store on eBay and only accept credit cards as a form of payment, that’s probably reportable 1099-K income.
If you have concerns about how 1099-K forms may affect your business, it’s best to talk to a tax professional (or the tax teamat Bench). They can help you understand whether you are earning 1099-K income and how it may affect your tax filing. If you work with Bench, you’ll also receive unlimited, on-demand consultations with our tax professionals to discuss all aspects of your business financials, including strategies to minimize your tax bill. Learn more here.
Is the $5,00 figure based on net or gross revenue?
The $5,000 figure is for gross receipts, not net receipts. The PSE must send the IRS the total amount of payment card income it processed for you for the entire year, not adjusted for fees, refunds, or rebates.
For example: if your total third-party network payments for the year were $5,500, but you ended up paying back $200 in refunds, your net sales are $5,300 ($5,500 - $200) but your gross sales are $5,500. Your payment processor will still send a 1099-K to the IRS.
Why doesn’t my form 1099-K match my sales revenue?
In some cases, the sales revenue number you have on your books won’t match your Form 1099-K. Don’t fret! Most of the time, this is based on whether you’re using the cash or accrual accounting method.
If you use the cash basis, you record sales revenue once it hits your bank account. But payment processor payouts can take multiple days to get the money in your hands.
For example, if you run an end of year sale and have a lot of sales on December 31st, the payment processor won’t deposit your money into your bank account until the next year. Using the cash basis, you won’t record the sales until the following year, but they’ll still be included on your 1099-K.
Another possible reason is if you use your payment processor for payments unrelated to your business. For example, if you have a successful ecommerce store and you have a second business for coaching other entrepreneurs, but both streams are run through the same payment processor, you’ll only receive one 1099-K.
Where can I find my 1099-K?
If your payment processor filed a 1099-K this year and you didn’t get one in the mail by January 31st, you might be able to find a PDF copy on that processor’s website. Here’s where the most popular payment processors keep your 1099-K information:
PayPal
Go to your PayPal dashboard, click on ‘Activity,’ then ‘Statements,’ then ‘Tax documents.’ Select the tax year for the 1099-K in question—a 1099-K should show up if PayPal prepared one for you for that tax year.
Stripe
Stripe lets you export your 1099-K forms from the Documents section of your Stripe Dashboard.
Square
You can download your 1099-K from the Tax Forms section of your Square Dashboard.
Shopify
In the Shopify admin section, navigate to ‘Settings,’ then ‘Payment providers.’ In the Shopify Payments section, click ‘View payouts,’ then ‘Documents.’ Your 1099-K should be available for download in PDF form.
Amazon Payments
Go to your ‘Seller Central Account,’ click on ‘Reports,’ then ‘Tax Document Library,’ then select the tax year you want a 1099-K for.
Further reading: Bookkeeping for Amazon Sellers
The bottom line
If you’re one of the many sellers receiving an additional tax form in the mail this year due to the 1099-K threshold change, you may be concerned about how this will change your taxes. The good news is, as long as you’re keeping up-to-date books, Form 1099-K will likely just be one more form to help you fill in any missing income numbers come tax time.
