14 Frequently Asked Questions About Form 1099-K You Should Know

TaxBandits - Payroll & Employment Tax Filings

8 min readSep 19, 2023

Have you ever found yourself in a situation where you’re staring at both Form 1099-K and Form 1099-NEC for the same payment and wondering, “What should I do now?” Or maybe you’ve been puzzled by questions like, “What payments trigger Form 1099-K, and what if I don’t receive a corrected one?”

You’re not alone! We’ve many questions about this from our clients. The recent reduction in the threshold for Form 1099-K reporting has caused more confusion than clarity.

Don’t worry; this blog will address some of the most frequently asked questions regarding Form 1099-K. So whether you’re a seasoned tax professional or just trying to make sense of this tax form, you’re in the right place. Let’s get started.

1. What is Form 1099-K?

Let’s start with the basics. Form 1099-K is an IRS tax return that reports online payments made through payment cards or third-party network transactions during the year. The Form 1099-K is generally filed by payment settlement entities.

2. What are payment settlement entities?

Payment settlement entities are companies that facilitate payments made through payment cards (such as debit cards, credit cards, and gift cards) or third-party network transactions (like those conducted through platforms such as PayPal, Venmo, Amazon, and Apple Pay) on behalf of merchants.

There are two primary types of payment settlement entities:

1. Merchant Acquiring Entity: This refers to an organization with a contractual obligation to make payments to participating payees as part of the settlement process for payment card transactions.

2. Third-Party Settlement Organization: This term applies to an organization with a contractual obligation to make payments to participating payees involved in third-party network transactions.

3. Who gets a Form 1099-K?

You will receive Form 1099-K from the payment settlement entities under the following conditions:

If you receive any payments through payment cards such as debit cards, credit cards, or stored value cards.
If you receive $600 or more payments through payment apps and online marketplace. The payment includes any personal item or good sold, renting property, or providing services through the following platforms:
- Payment apps
- Freelancer marketplace
- Real estate marketplace
- Ticket selling and reselling platform
- Taxi or car rental platforms
- Craft or maker marketplace
- Crowdfunding platforms
- Auction sites

4. What is the New 1099-K Threshold to Report Form 1099-K?

Prior to the 2023 tax year, payers were obligated to file 1099-K when their recipient received a total reportable gross payment of $20,000 with a minimum of 200 transactions through third-party network transactions.

These thresholds were very high, and most businesses did not meet them. To tackle the problem of unreported digital payments, the IRS has substantially lowered the threshold from $20,000 to $600, with no transaction limits.

In summary, for the 2023 tax year, you can expect to receive Form 1099-K from a Payment Settlement Entity (PSE) if you have received $600 or more in payments through third-party networks such as PayPal, Venmo, Cash App, Amazon, and others. This change aims to capture a broader range of digital transactions and ensure greater tax reporting compliance.

5. Is the 1099-K threshold applicable for Payment card transactions?

That’s an excellent question. In general, the 1099-K $600 threshold applies solely to payments conducted through third-party network transactions, such as those made through payment apps or online marketplaces. This threshold does not pertain to payments made using payment cards, like credit or debit cards.

6. What are payments that should not be reported on Form 1099-K?

Any personal payments, such as gifts, sharing rent with friends, or simple reimbursements among family members or friends, are not considered taxable and do not need to be reported on Form 1099-K.

However, there is a possibility you will be receiving Form 1099-K for the personal transaction because it’s hard for payment settlement entities to differentiate between personal and business transactions. Therefore, it is advisable to maintain a separate account for both business and personal transactions to avoid false reporting.

7. Since I received form 1099-K, does it mean I owe tax?

Receiving a Form 1099-K doesn’t necessarily mean you owe taxes; it depends on the nature of the income reported. Form 1099-K is primarily an informational document, and it’s crucial to assess whether the payments are indeed taxable income by considering your specific situation. Here are a few different examples to illustrate this:

Scenario 1:

Smith works part-time as a content writer on Fiverr and receives $1750 as payment through Fiverr (Third-party settlement Organization) over the year.
In this case, the $1750 should be included when calculating his gross receipts for his income tax return.
However, Smith may be eligible to deduct certain business expenses related to his freelance work, which can offset some of the taxable income.

Scenario 2:

Morgan sells furniture on an auction site for $7,000. However, the original price of the furniture was $9,000.
The $7,000 she received is NOT subject to tax or any reporting since it represents selling personal items at a loss.
Losses on personal property sales generally do not impact your taxable income.

Scenario 3:

Peter has a hobby of selling handmade bags and goodies on an auction site, generating $6,060 in sales during the year.
The $6,060 from his hobby should be included when calculating his gross receipts for tax purposes.

Scenario 4:

Steve treats his colleagues to a $1400 dinner and is reimbursed $1,300 by his friends through Apple Pay (Peer-to-peer payment).
The $1,300 he received is NOT subject to tax or any reporting because it’s not payment for goods or services but rather a reimbursement for a shared expense.
Reimbursements for personal expenses are typically not considered taxable income.

8. What should I do if I receive Form 1099-K for personal items sold?

As per the IRS guidance, the payer is required to report the payment information under the following conditions:

If a Personal Item is sold for a loss

Generally, any personal sold for loss is not taxable income. However, you should report the loss either on:
- Schedule 1 (Form 1040)
- Form 8949

Reporting on Schedule 1 (Form 1040)

The payer should report the offset and gross income payment of Form 1099-K on Schedule 1 (Form 1040).

For example, If you sold furniture on Etsy for $900, the original price is $1200. You have a loss of $300. The amount should be reported on Schedule 1 (Form 1040) as follows:

Enter the Form 1099-K gross payment amount (Box 1a) on Part I — Line 8z — Other Income: “Form 1099-K Personal Item Sold at a Loss, $900.”
Offset the Form 1099-K gross payment amount (Box 1a) on Part II — Line 24z — Other Adjustments: “Form 1099-K Personal Item Sold at a Loss $900”

Reporting on Form 8949

You can also repro the loss on Form 8949 and Schedule D.

If a Personal Item is sold for a Gain

The personal items sold for gain are taxable income and should be reported on Form 8949 and Schedule D (1040).
For example, if you sold a concert ticket on a ticket-selling platform for $1100, whereas the original price of the ticket is $500, you have a gain of $600 and should be reported on Form 8949 and Schedule D (1040).

9. What if the total gross payment reported on Form 1099-K does not belong to you?

There are chances the amount reported in the Form 1099-K doesn’t belong to you or is incorrect. This can occur in the following errors:

Reporting business income on Form 1120, 1120S, or 1065, while Form 1099-K is under your name and Social Security Number.
Sharing your credit card terminal with another individual or business.
Engaging in the purchase or sale of your business during the year.
Changing your business entity structure within the year.
Encountering a merchant category code (MCC) that doesn’t accurately describe your business.

Here is what you should do:

It’s advisable to verify the payments reported on Form 1099-K accurately. If the gross payment amount in Form 1099-K (Box 1a) does belong to you, follow the below steps:

Reach out to the Payment Settlement entity (PSE)/ filer and request a correct Form 1099-K.
Keep a copy of the original form and all relevant information for your records.

10. What should I do if I don’t receive a correct Form 1099-K from the payer?

In case you haven’t received the correct Form 1099-K form, the corresponding filer. Report the error payment on Schedule 1 (Form 1040) as follows:

Enter the error on Part I — Line 8z — Other income: “Form 1099-K received in error, Error amount.”
Adjust it on Part II — Line 24z — Other adjustments: “Form 1099-K received in error, Error amount.”

11. What should I do If I receive Form 1099-NEC and 1099-K for the same payment?

If you have received both Form 1099-NEC/MISC or 1099-k for the same payment. Report the payment in 1099-K when filing your tax return. Ensure to maintain a record of your income in case any discipline arises.

However, you can avoid this dual reporting by following the below measures:

Create a separate account for personal and business transactions, and make sure to pay personal expenses with your personal account and business transactions through the business account.
Clearly label third-party transactions in your account software.
Revise your business payment policy to accept only payments through online platforms like PayPal, Venmo, payment cards, etc., or solely through cash or check.
Communicate to your clients not to provide 1099-NEC 1099-MISC if they have made the payment through PSEs.

12. Are the discounts and cashback amounts taxable, and should they be reported in Form 1099-K?

No, the cashback and discounts are generally not taxable and should not be reported on Form 1099-K.

13. What is a Merchant Category Code (MCC) in Form 1009-K?

An MCC is a four-digit number used by the payment card industry to classify businesses by the goods or services they provide.

14. I made a payment to my vendor through Zelle. Does it mean I don’t have to file 1099-NEC?

No, unlike other payment apps such as PayPal and Venmo, the 1099-K tax reporting rules do not apply to Zelle. This distinction is because Zelle is controlled by a consortium of banks that use it to facilitate direct fund transfers between clients. In this setup, the payment network never holds custody of your money. Therefore, the IRS considers it a direct payment, and your vendor will not receive Form 1099-K from Zelle.

Wrapping up

Form 1099-K can be confusing, but it’s essential to understand its implications for your tax situation. Always keep accurate records, verify the information on the form, and take appropriate steps to address discrepancies. If you have specific questions about your tax situation, it’s advisable to consult with a tax professional for personalized guidance.

Fortunately, simplifying the process of filing your 1099-K is within reach. Trusted e-filing software, like TaxBandits, can streamline your tax filing experience, making it more efficient and stress-free. Whether you’re an online business owner or operate an online marketplace, TaxBandits offers user-friendly features designed to ease the burden of tax compliance.

Moreover, TaxBandits goes further by providing an API that empowers software providers to integrate tax compliance into their platforms seamlessly. This developer-friendly API simplifies the automation of 1099 reporting, eliminating the complexities of manual processing and ensuring that you stay on top of your tax obligations.