The 5 Ws of a 1099-K

Don’t let your 1099-K stand in the way of business.

If you’re an Uber driver, run an Etsy shop, or rent out your home to AirBNB frequenters, then you might notice a new tax form that has found it’s way into your mailbox in recent years.

It’s nothing to stress over. This is generally a straightforward form to review, and easy to report on your tax return.

What is a 1099-K?

Form 1099-K, otherwise known as Payment Card and Third Party Network Transactions, is one of the more recently introduced tax forms. It was created by the IRS in order to report income received from online electronic payments (e.g. credit cards, PayPal, debit cards, etc.) through third party processors. Prior to this form, many independent contractors who used online payment methods were left confused on how to report those sales on their tax returns.

Who gets a 1099-K?

Wondering if you’re one of the lucky ones who will get a 1099-K this year? The qualifications are somewhat more specific compared to other forms such as the W-2. With a 1099-K, it is based on sales volume.

Retailers who accept online credit card payments will receive a 1099-K from any business that processed their payments. However, the 1099-K is only mandatory if online processing meets the following stipulations:

  1. Sales volume is over $600 per year via credit card companies.
  2. Sales volume is over $20,000 and more than 200 individual transactions were made via third party processors.

*Please note that income reported on a 1099-K is completely separate from what you earned in cash, in payments by check, or in any other form.

When will I receive my 1099-K?

Similar to other income statements such as the W-2 form, you should receive your 1099-K form by January 31st of the following year. If you’re due to receive more than one 1099-K form, then you probably want to wait until you receive all of them to file your tax return for the year.

Where does my 1099-K come from?

You may be curious as to who issues you a 1099-K form. You’ll get it from the third party processor you’re conducting business through. For example, if you run an Etsy shop, you’ll receive a 1099-K from Etsy. You’ll only receive one per third party company. However, if you own an Etsy shop and rent out your home through AirBNB, then you will receive two 1099-Ks; one from Etsy and one from AirBNB.

This only goes for payments made directly through those sites’ payment processing systems. Additionally, if you accept payments by PayPal, Square, Stripe, or other such services, those companies will issue you a separate 1099-K for the payments they processed. If you do business via multiple sites, or accept payments through more than one payment processor, this can get tricky. You’ll want to gather accurate records of how much you were paid via each, in case one of them sends you a 1099-K but another one doesn’t meet the 1099-K requirements.

Why didn’t I get a 1099-K?

There are two reasons why you would not have received a 1099-K.

  1. Your sales volume did not require one to be issued to you.
  2. Your third party processor made a mistake on their end.

Of course, there’s always the possibility that your mailman missed your house. But these are typically the only reasons why you wouldn’t have received one.

Now, if you should have received a 1099-K and didn’t, then contact the processor that you conduct business through. If it was a mistake on their end and they never issued one, then you can report your sales on the corresponding schedule of your tax return and leave the 1099-K line blank.

Even when the payment processor wasn’t required to issue you a 1099-K, you are still required to report the income on your tax return. So the company which processed the payments should provide you with a record of all the transactions you received during the tax year, covering all income you need to report from that source.

How do I report information from a 1099-K?

When you receive your 1099-K in the mail, you’ll notice that it’s a fairly simple form. You’ll see your overall sales amount for the year and a breakdown of how much of that income was earned per month. Although you can see the necessary earnings from the year, you’ll still need to factor in any deductions, which you can report on a business schedule (Schedule C).

You can easily determine if you need to report this income on a Schedule E or a Schedule C. If you earned rental income (e.g. via AirBNB), then you would report your earnings on a Schedule E. Otherwise, a Schedule C is the way to go. In both cases, the schedule will include a place for all the expenses you might be allowed to deduct from this income.

Need more help?

RapidTax can help you prepare your tax return and report your 1099-K information for the year. Let us deal with the pesky tax forms. You should be putting your energy into getting those online orders shipped and spring-breakers accommodated! Create an account with us today and you’ll have access to free customer service and a team of tax professionals ready to assist.

RapidTax Blog Footer 2


Leave a Reply

Your email address will not be published. Required fields are marked *