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How To Use Form 1099-K For Your eCommerce Business

Note: IRS delays the rollout of the $600 threshold for 1099-K reporting.
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.

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eCommerce businesses are required to use Form 1099-K to interpret the third-party payments received from payers. Learn how with this simple guide.

Form 1099-K: Overview Of 1099-K Form

  • Form 1099-K is a federal return that reports third-party payment network and payment card transactions.
  • Third-party payment settlement organizations (TPSOs) or payment settlement entities (PSEs) are required to prepare and file a Form 1099-K.
  • PSEs and TPSOs need to file a Form 1099-K for each payee to whom they’ve paid $600 or more in a calendar year in settlement of third-party transactions.
  • The minimum reportable threshold for the 1099-K form has been reduced from $20,000 to $600 starting in 2022.
  • The transaction limit of 200 has been removed to enable complete transparency of payments.
  • For calendar years prior to 2021, filers can follow the old 1099-K instructions to prepare the 1099-K returns.
  • For calendar years after 2022, filers need to follow the new reporting requirements for 1099-K 2022 as prescribed by the IRS here.

Role Of Third-Party Payment Settlement Entities In 1099-K Reporting

  • Third-party payment network entities and payment card entities are known as payment settlement entities or payment settlement organizations. Example: PayPal, Venmo, etc.
  • A PSE needs to file a 1099-K form if the gross total of the payments made in settlement of third-party transactions exceeds $600 with no limits on the number of transactions.
  • A 1099-K form is prepared by the PSE, and it’s issued to the participating payee to notify them of the payments made in a calendar year.
  • The payee must review and document the form for information purposes. If the information reported on Form 1099-K is incorrect, the payee must approach the PSE to change the information.
  • On approval, the payer must file 1099-K form with the IRS.

 Reporting 1099-K 2022 Payments: For PSEs

  • Payment settlement entities are required to file a 1099-K for each payee who has received $600 or more in settlement of third-party payment transactions from them in a calendar year.
  • The gross total of the reportable payments is the total of payments made by the PSE to the participating merchant entity (payee) in a calendar year.
  • The gross total of 1099-K payments must be at least $600 to qualify for IRS reporting. 
  • The gross total of reportable payments does not include refunds, returns, and other alike contingent transactions.

Understanding 1099-K Payments Received: For Payees

  • Payments issued by PSEs or PSOs are considered income.
  • Regardless of the 1099-K form being issued to you, the gross total paid to you in settlement of third-party payment transactions will be reported and filed by the payer.
  •  The IRS validates and matches the payments reported on Form 1099-K with the reports on the business income tax form filed by the payee.
  • Payees do not have to worry about filing Form 1099-K.
  • The information reported on 1099-K must be considered when computing income tax for your e-commerce business.
  • To avoid double reporting the income received through PSE payments, review your 1099-K copies thoroughly and report your income per the actual income received.

In a unique scenario, where the e-commerce entity processes payments directly into the seller’s account, then the gross payments issued to its sellers through the payments infrastructure must be reported on Form 1099-K.

In this scenario, the e-commerce entity is the payer and its sellers are the payees. Similar to what Amazon is doing.

Look at what Amazon is saying about 1099-K reporting.

How Tax1099 Helps

Do you own or work for a third-party payment settlement entity?

Has the PSE paid $600 more in settlement of third-party payment transactions?

Need to report with, and file Form 1099-K in bulk?

Think no more.

Tax1099 will help you take care of it all.

Businesses can easily onboard payees, prepare the 1099-K forms, and file Form 1099-K with the IRS securely through a dynamic tax compliance enabler like Tax1099.

Tax1099 is authorized by the IRS and trusted by 200,000+ businesses like yours.

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