Form 1099-K serves as a reporting mechanism for payment settlement entities to disclose online payments conducted via payment cards or third-party networks throughout the calendar year.
Prior to the year 2023, the reporting threshold for Form 1099-K was set at $20,000 in total payments, coupled with a requirement of 200 or more transactions conducted during the calendar year. However, with the growing prevalence of digital payments, The American Rescue Plan Act of 2021 (ARP) brought about a significant change.
It lowered the reporting threshold for Form 1099-K to $600 for payments facilitated through third-party networks, regardless of the number of transactions involved. This adjustment was made to address the evolving landscape of online transactions and ensure more comprehensive reporting of income.
What to do with Form 1099-K?
Here’s what you need to do first when you receive a Form 1099-K:
Check the Gross Amount
- Examine the total payment figure in Box 1a, which reflects the payments you’ve received. This figure does not account for adjustments like fees, credits, refunds, shipping costs, cash equivalents, or discounts.
Note: These adjustments do not constitute income and can be subtracted from the gross amount.
- Compare the gross payment amount indicated on Form 1099-K to your personal records. Your records may encompass payment application reports, online marketplace data, receipts from payment card transactions, or statements from merchants.
- Confirm the gross payment amount is accurate
What data and documentation do you require?
|Data and Documentation||Details|
|1. Gross Payment Amounts||Total payment amounts received for each transaction.|
|2. Transaction Dates||Dates of each transaction for accurate reporting.|
|3. Customer Information||Customer names, addresses, and TINs/SSNs.|
|4. Sales Receipts||Copies of sales receipts, invoices, or transaction confirmations.|
|5. Merchant Statements||Statements from online marketplaces or merchant accounts showing transaction details.|
|6. Payment Application Reports||Reports from payment apps or platforms documenting transactions.|
|7. Taxpayer Records||Your tax identification number, business details, and relevant tax documentation.|
How do you correct information on Form 1099-K if the gross amount report doesn’t belong to you?
There are situations when the gross payment amount (Box 1a) on Form 1099-K may not belong to you or is incorrect in the total gross payment amount being reported. This can occur due to common errors such as:
- 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.
It’s essential to review your business records to verify the accuracy of the gross receipts reported on Form 1099-K and to ensure the correctness of your tax-related details. If the information on your 1099-K doesn’t align with your records, it’s advisable to consider reaching out to the payment settlement entity (PSE) responsible for issuing the form.
What should you do if you receive 1099-K in error?
If you find yourself in a situation where you’ve received a 1099-K in error, perhaps for personal transactions with friends or due to duplicate payments, here are the steps to take:
- Contact the Payer: Reach out to the payer promptly, the issuer’s name is usually found on the top right corner of the form. Request a corrected 1099-K with the accurate information that reflects the error.
- Attempt to Get a Corrected Form: Make every effort to obtain a corrected Form 1099-K from the payer to ensure the information reported to the IRS is accurate.
- If Corrected Form Is Unavailable: If you cannot secure a corrected Form 1099-K from the payer, follow these steps when filing your taxes:
- On Schedule 1 (Form 1040):
- Enter the error in Part I – Line 8z under “Other income” as “Form 1099-K received in error.”
- Adjust it in Part II – Line 24z under “Other adjustments” as “Form 1099-K received in error.”
By taking these actions, you can address the issue of receiving a 1099-K in error when filing your taxes and ensure that your tax return accurately reflects your financial situation.
What should you do if you receive Form 1099-K for personal items sold?
As per the IRS guidance, payees are required to report the information on their tax return under the
|Personal items sold at a loss||– Not taxable but report the loss. – Report on Schedule 1 (Form 1040): – Enter gross payment amount from Form 1099-K (Box 1a) on Part I – Line 8z under “Other Income” as “Form 1099-K Personal Item Sold at a Loss, $XXX. – Offset the same gross payment amount on Part II – Line 24z under “Other Adjustments” as “Form 1099-K Personal Item Sold at a Loss $XXX. – Alternatively, report the loss on Form 8949, which is used with Schedule D (Form 1040) for capital gains and losses.|
|Personal items sold at gain||– Taxable gain, report it. |
– Report the gain on Form 8949. – Include the information on Schedule D (Form 1040), used for reporting
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