IRS Form 1099-K gets a lot of attention each tax season. That’s in part because the 1099-K form is used to report certain payments from payment cards and third-party network transactions. And millions of people use third-party networks each year (think Venmo, PayPal, Cash App, Stripe, etc.) for both business and personal transactions.
But the 1099-K has received attention even before the current tax season started because of a new $600 reporting threshold for the form that is expected to apply for 2023. So, it’s important to know what the 1099-K form is and what to do when you do (or don’t) receive one.
What a 1099-K form is used for
An IRS 1099-K form is an IRS information reporting form. Payment networks and other providers use the form to report certain transactions from payment cards and through various payment networks. Third-party payment networks can include a range of providers that you’re likely familiar with like Venmo, PayPal, Stripe, and CashApp. And if you sell on Etsy, eBay, Depop, or other similar sites, you probably process payments through third party networks as well.
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1099-K threshold: What is 1099-K income?
Payment networks don’t have to report all transactions on 1099-K forms. There is a reporting threshold that triggers a 1099-K. For your 2022 tax return (if you haven't filed yet), that threshold is $20,000 and 200 transactions. That means that if you received $20,000 or more in payment for goods and services through a payment network and had more than 200 payment transactions during 2022, you should have received a 1099-K form from your payment network.
For the 2023 tax year, (tax returns normally filed in April 2024) the 1099-K reporting threshold is $600.
However, the 1099-K is supposed to report transactions for goods and services. Personal transactions (e.g., sending money to friends or family not in exchange for goods or services) should not be reported on the 1099-K form.
Is a 1099-K required for $600?
Now that we’re into 2023, a new, lower threshold applies to trigger a 1099-K. If, during 2023, you receive more than $600 for goods and services through a payment network–even if you only have a single transaction of that amount–you should receive a 1099-K in early 2024. You would have to report that income on your 2023 federal income tax return.
This new, much lower threshold for the 1099-K (also known as the $600 rule) has caused a lot of confusion and means that more people who have never received a 1099-K could now receive one. So, for example, if you sold a piece of furniture on eBay for $650 and were paid through a third-party payment network, and that’s your only such transaction in 2023, you could receive a 1099-K for your 2023 tax return. In the past, that $650 sale would be far too small to trigger the IRS reporting form.
What’s the difference between 1099-NEC and 1099-K?
The IRS 1099-NEC form is used now instead of the 1099-MISC. The form is used by businesses to report non-employee compensation. So generally, when you’re self-employed, businesses will typically issue a 1099-NEC when you receive a certain amount of money from them. The threshold for the 1099-NEC reporting form is at least $600. (That threshold is similar to the new, 2023 1099-K threshold. But, the 1099-K focuses on payments received through transctions on payment cards and through third party payment networks.)
Money reported on a 1099-NEC could be received in various forms including for example, rents, prizes, and awards. But similar to the 1099-K, even if you don’t receive a 1099-NEC when you know that you received taxable income from a business, you are required to report that income on your federal return. If you’re unsure about how to report self-employment income, consult a professional before you file.
How does a 1099-K affect your taxes?
Whether you receive a 1099-K or not, the IRS expects you to report your taxable income. And third party payment networks that you had transactions with that trigger the reporting threshold, will send a copy of the form to both you and the IRS. So, when you receive a 1099-K, you should keep it with your tax documents and make sure that the information on the form matches your records.
Double check that the income and other information on the form is accurate. If the 1099-K doesn’t belong to you, has an incorrect taxpayer identification number, or has incorrect payment transactions or amounts, contact the payment network that sent you the form. Their information should appear on the lower left of the 1099-K. They may be able to correct the form and if they send you a corrected version. Keep that, along with any other correspondence from the network, in your files.
Keeping good records and documentation is the best way to support any deductions claimed and income reported on your federal tax return. And your claimed tax deductions and credits, and income, taken together, will ultimately determine how much tax you pay overall and whether you receive a tax refund.
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