Understanding Your Form 1099K

Nov 7, 20232 min read

Updated: Jan 16

A Form 1099K is a tax form used to report income received through payment card transactions, such as credit card and debit card sales, as well as through third-party payment processors like PayPal, Square, Stripe, Venmo, Shopify and other similar services, or Marketplace Providers such as Amazon, Ebay and Etsy. The form is typically used by businesses, particularly those engaged in e-commerce, to report their gross payment card and third-party network transaction sales to the Internal Revenue Service (IRS). Year-end reconciliation of your income statement to your 1099K forms is necessary.

Contact bookkeepingbusinessonline.com for assistance.

Here are some key points for understanding your Form 1099K:

Issuer: The form is typically issued by payment settlement entities, including credit card companies, banks, and third-party payment processors, to both the business receiving payments and the IRS.
Reporting Threshold: A Form 1099K is typically issued when a business's gross payments exceed a certain threshold. As of my last knowledge update in January 2022, the threshold was $20,000 in gross payments and 200 or more individual transactions in a calendar year. However, these thresholds may change over time, so it's important to check the most current IRS guidelines. Update: Reporting Threshold
Information Included: The form includes information about the total gross amount of payment card and third-party network transactions received by the business during the tax year. It does not reflect the net income after expenses, refunds, or other deductions.
Tax Reporting: Businesses receiving Form 1099K should use the information provided on the form to report their income on their federal income tax return. The income reported on the form should match the sales or revenue that the business reports on its tax return.
Potential for Discrepancies: It's essential for businesses to ensure that the income reported on their tax return matches the information on the Form 1099K. Discrepancies can lead to IRS inquiries or audits, so accurate record-keeping and reconciliation are important, especially for marketplace and payment processor providers. Your bookkeeper-accountant should be provided with a copy to confirm all sales have been booked to your income statement.