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.
Keep yourself informed on the latest Form 1099-K notices and penalties for the 2022 tax year.
Form 1099-K is one of the most important information returns for third-party payment networks and payment card entities.
If you’ve received a copy of Form 1099-K from your payer; be it from a third-party entity like PayPal or Venmo or a payment card entity like MasterCard or VISA, it means that you’ve probably connected your bank account with these third-party entities to receive payments from your customers.
The PSE or payment settlement entities usually send a Form 1099-K when they process or facilitate payments for their merchants.
Understanding 1099-K Payments With Real-Life Scenarios
Let’s say that you’re a small business owner, and you have an online store where you sell electronic products like keyboards, earphones, USB drives, etc.
Now, when customers browse through your online store and shop for products, they will want to make payments online for an “instant” and convenient experience.
To enable such a quick and easy payment experience for your customers, you will need to connect with a third party. This could be a payment processor or a payment facilitator.
These third parties are known as payment networks and payment card entities.
Each time a customer places an order on your online store, the payments are received by the third party instantly, and they settle the amount into your bank account.
So, this is technically you “receiving” the payments from the third party.
Hence, the third-party payment network or payment card entity will send a copy of Form 1099-K to you.
Useful Read: Guide: Step-Wise Instructions To Read & Prepare Form 1099-K
Alternative Scenarios Where A Form 1099-K Is Sent To A Recipient
Gig Companies: The payments are received by the gig company from the customer and later settled into the gig worker’s account. Examples: Lyft, Fiverr, Upwork, etc.
Merchant Economy: The payments are received by the merchant through electronic payment methods and the payments are later settled into the sub-merchant’s bank account.
What’s NOT A 1099-K Payment?
1099-K payments should not be confused with personal payments.
For example, let’s say that you’re out for dinner with your friends, and you all decided to split the bill.
You will use Venmo or PayPal to transfer your share of the bill to your friend’s bank account. This is NOT a 1099-K payment because the nature of the transaction is personal.
Similarly, if you’ve sent $100 to a friend as a cash gift, it’s still not a 1099-K payment even though you are using a third-party network to “send” the gift.
Note: A transaction qualifies as a 1099-K third-party network transaction only when the transaction takes place in the course of business. Personal transactions do not constitute the 1099-K narrative.
On the other hand, if you receive payments from PayPal or Venmo for selling products online, expect to receive a Form 1099-K from a third-party payment network at the end of the tax year. This is because you’re an online business and selling products online is what you do, making your payments, your “income”.
1099-K Reporting Requirements For 2022
- In 2022, third-party payment networks and payment card entities are required to issue a Form 1099-K to their participating payees when the gross total of the payments settled is $600 or more.
- A separate Form 1099-K must be issued to each payee who has received a gross total of $600 or more from the third-party network or payment card entity.
- Form 1099-K must be issued for all reportable payments made in the previous calendar year on or by January 31 of the successive year. Meaning: For payments sent in 2021, the payer must issue a Form 1099-K to the payee by January 31, 2022.
- Form 1099-K is due to the IRS by February 28 if you’re paper filing. If you’re eFiling, the due date is March 31.
Also Read: What Has Changed In Form 1099-K Reporting In 2022?
1099-K Notices
You need to file a Form 1099-K If:
- You’re a third-party payment network or credit card company or a third-party settlement organizations
- You’ve paid $600 or more to participating payees in a calendar year
- The payments were made in the course of business
You must issue a copy of Form 1099-K to your payee and file the final Form 1099-K with the IRS.
The recipient (business or individual) need not file a Form 1099-K. The payee just needs to save the copy of the Form 1099-K for documentation purposes.
1099-K Penalties
Use the following table to understand the types of penalties assessed by the IRS on payers for delaying or missing the 1099-K filings.
| Penalty Type | Delay | Penalty Amount Per 1099 |
| Intentional Disregard | Due date | $560 – no limit on maximum penalty |
| Late Filing | 30 days after due date | $50 – $197,500 |
| Late Filing | Beyond 30 days but before August 1 | $110 – $565,000 |
| Late Filing | After August 1 | $280 – $1,130,500 |
The smartest way to avoid such penalties is to never miss a deadline.
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Note: There are no specific penalties for the 1099-K form type. The general 1099 penalty rules apply to all 1099 forms, including Form 1099-K.
1099-K Due Dates
Use the following due dates table to prepare and file your 1099-K returns easily.
| Filing Type | Due By |
| Recipient Copy | January 31 |
| IRS Paper File | February 28 |
| IRS eFile | 31 March |
So, there you have it.
Notices, penalties, due dates, and every other detail you need to know about Form 1099-K.
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