Note: IRS delays the rollout of the $600 threshold for 1099-K reporting.
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The threshold for Form 1099-K remains at $20,000 with a 200 transaction limit for the year 2023. This delay designates 2023 as a transition period, maintaining the existing requirements for reporting.
This easy DIY guide will teach you everything you need to know about the 1099-K form. Right from what it is to when you need to use it and how to fill it out, it’s got everything covered.
With the New Year approaching, it is natural to look forward to the holidays. The happiness of the festive season is, however, short-lived, as we realize that we must prepare for a New Year that’s about to embrace us and of course, the tax season that awaits us on the other side of the calendar.
This is when most of us start scrambling to get all our tax forms and paperwork in order and look forward to the tax season.
The 1099 filing season requires you to file a variety of 1099 forms. One such form is Form 1099-K This article will take you through everything you need to know about the form and help you be better prepared for the tax season.
Understanding Form 1099-K
Form 1099-K is a Payment Card and Third-Party Network Transaction, and it is issued by companies that facilitate payment transactions or simply Payment Settlement Entities (PSEs). This form provides information to the IRS about the gross amount of money processed through credit cards, debit cards, and other similar payment methods.
Form 1099-K reports the third-party payment settlement transactions processed by payment settlement entities. Examples of such PSEs are PayPal, CashApp, Venmo, and more.
As a payer, you are required to file Form 1099-K if, in the course of your trade or business, your gross reportable payment transactions exceed $600 in a calendar year.
To simplify it better, let’s take an example. You are a third-party payment processor and a merchant comes to you to process their payments. You agree to do so and throughout the year, you processed $1,000,000 in gross transactions for this merchant. Since the amount is over $600, you will have to file Form 1099-K for this merchant (your participating payee).
Related Article: What is Form 1099-K and What has Changed in 2022
Understanding A Payment Card Transaction
According to the IRS, “A payment card transaction is any electronic funds transfer between a payee and a payor.” In other words, it’s simply a financial transaction between two parties using a credit or debit card instead of cash or check.
Understanding Third-Party Payment Transactions
A Third-Party payment transaction means, “A transaction in which a third party accepts or processes a payment on behalf of the payee.” In other words, it’s a financial transaction between two parties where a third party is involved in processing the payment. Services like PayPal, Apple Pay, and Venmo are all examples of third-party payment processors.
Related Article: Form 1099-K for Payment Card & Third-Party Payment Network Transactions
What Is Reported On Form 1099-K?
The information reported on Form 1099-K includes:
1. The name, address, and taxpayer identification number of the payee or merchant business that received payments
2. The gross amount of money settled (if it’s more than $600)
3. The merchant category code (MCC)
The MCC is a four-digit code identifying the type of business that processed the transaction. For example, code 4812 corresponds to telephone services, while code 5912 corresponds to drug stores and pharmacies.
Related Article: ARPA Lowers Form 1099-K Reporting Threshold For 2022 Tax Year
Who Files 1099-K?
Third-Party Network entities and payment card entities that enable merchants to accept credit cards, debit cards, and other types of third-party payments must file 1099-K.
If you are a Third-Party Network entity, you must file a 1099-K for each person with whom you have transactions totaling over $600 in a calendar year. As payers, it’s your responsibility to determine if the recipient is a person or business. You will use the TIN (Taxpayer Identification Number) to identify each person or business.
Let’s look at this example. Say, you are a Third-Party Network entity like PayPal or a payment card entity like Visa/Mastercard, and you have a customer who is a merchant that uses your services to accept payments from their customers.
Who Receives 1099-K?
The 1099-K is issued to any merchant who accepts payment in settlement of a transaction for goods, services, or both that was processed by the Third-Party Network or by a payment card entity such as Visa/Mastercard on behalf of the merchant.
Let’s say you are a freelance website developer and use a payment processing service to invoice your clients. In a year, you process $48,000 through the network. Then you’ll receive a 1099-K for that amount.
Deadline To File 1099-K
The last thing you want is to be penalized for filing your taxes late. It might not seem like a big deal at first, but the penalties can add up and result in a lot of money that you owe the IRS. That’s why it’s important to ensure that you file your 1099-K on time.
| Filing Type | Due Date |
| Recipient Copy | Jan 31, 2023 |
| IRS eFile | March 31, 2023 |
| IRS Paper Filing | Feb 28, 2023 |
How to eFile 1099-K?
The good news is that you can eFile 1099-K easily and quickly with the help of an IRS-approved online tax filing service, such as Tax1099.
Tax1099 is among the most popular e-filing services available in the U.S. and used by hundreds of thousands of businesses and tax professionals annually. Filing your 1099-K with Tax1099 only takes a few minutes, and you can get started for free.
Here’s how you can eFile 1099-K with Tax1099:
Step 1: Sign up, verify your email address and log in to your Tax1099 account.
Step 2: Click on the “Create New” button and select “1099-K” from the list of forms.
Step 3: Import your payee data in seconds with our multiple integration options.
Step 4: Review your data and make any necessary changes.
Step 5: Generate and print your forms for free, or eFile them with the IRS.
Understanding The Boxes In Form 1099-K
We understand how confusing it can be to report information on the 1099-K. With so many boxes to fill, it can be difficult to know what goes where. That’s why we’ve put together the requirements for each box in an easy-to-follow guide.
Box 1a – Gross Amount Of Payment Card/Third-party Network Transactions
Use this box to report the total payment card/third-party network transactions before any adjustments or refunds.
Box 1b – Card Not Present Transactions
Use this box to report the total amount of card not present transactions before any adjustments or refunds.
Box 2 – Merchant Category Code
Under this section, you will need to report the merchant category code (MCC). The MCC is a four-digit number assigned to businesses by credit card issuers to classify the type of goods or services the business provides.
Box 3 – Number Of Payment Transactions
In this box, you will need to report the total number of payment card/third-party network transactions that were processed by your business.
Box 4 – Federal Income Tax Withheld
Use this box to report the total amount of federal income tax that was withheld from your customers’ payments.
Boxes 5a–5l – Gross Amount Of Payment Card/Third-party Network Transactions Made
Use this box to report the total amount of payment card/third-party network transactions that were processed by your business.
Boxes 6–8 – State Income Tax Withheld
Use this box to report the total amount of state income tax withheld.
Updates To 1099-K Form Reporting Requirements
Till the Tax year 2022, the 1099-K was only required if the total amount of payments processed was more than $20,000 and there were more than 200 separate transactions. However, after the tax year 2022, these requirements have changed.
Now, a 1099-K is only required if the total amount of payments processed is more than $600. The reason behind this change was to ensure that every business owner was paying their taxes.
What Makes Tax1099 The Perfect Fit For All Your 1099-K eFiling Needs?
You don’t want to take any chances when it comes to eFiling your 1099-K forms. That’s why IRS-authorized Tax1099 is the perfect solution for all your 1099-K filing needs. Trusted by more than 150,000 Businesses and CPAs, Tax1099 is the best way to eFile your 1099-K forms. But don’t just take our word for it- see our range of features below and try Tax1099 for yourself today!
1) 100% Accurate TIN Verification: An incorrect TIN can lead to significant penalties, up to 30% of the total reported amount. Tax1099’s TIN verification process is the most accurate and fastest in the industry, so you can be confident that your forms will be filed accurately and securely.
2) Bulk Import: As a business, you have thousands of vendors and customers, which means you have a lot of data to manage. Tax1099’s bulk import feature allows you to quickly and easily upload your data onto our platform, so you can file your forms in no time.
3) Quick and Easy Integration: How often have you wasted time inputting data into a new system? Tax1099’s quick and easy integration means you can start using the system immediately without spending hours entering the data. We offer a wide range of integrations, so you can be sure that Tax1099 will work with your existing systems.
These are just a few of the many reasons why Tax1099 is the best choice for eFiling your 1099 forms. Sign up today and see how easy it is to get started.