Understanding Your Form 1099-K

Form 1099-K, Payment Card and Third-Party Network Transactions, is an IRS information return used to report certain payment transactions to improve voluntary tax compliance. You should receive Form 1099-K by January 31 if, in the prior calendar year, you received payments:

  • From all payment card transactions (e.g., debit, credit, or stored-value cards), and
  • In settlement of third-party payment network transactions above the minimum reporting thresholds as follows:
    • For returns for calendar years prior to 2022:
      • Gross payments that exceed $20,000, AND
      • More than 200 such transactions
    • For returns for calendar years after 2021:
      • Gross payments for goods or services that exceed $600, AND
      • Any number of transactions

The American Rescue Plan of 2021 changed the reporting threshold for third-party settlement organizations, including payment apps and online third-party settlement organizations. The new threshold requires reporting of transactions in excess of $600 per year; changed from the previous threshold of an excess of 200 transactions per year and an excess of $20,000. TPSOs are required to report payments for goods and services. The law is not intended to track personal transactions such as sharing the cost of a car ride or meal, birthday or holiday gifts, or paying a family member for a household bill.

NOTE: On Dec. 23, 2022, the IRS announced that calendar year 2022 will be treated as a transition year for the reduced reporting threshold of $600. For calendar year 2022, third-party settlement organizations who issue Forms 1099-K are only required to report transactions where gross payments exceed $20,000 and there are more than 200 transactions.

Even though the Form 1099-K reduced reporting requirement for third-party settlement organizations was delayed, some individuals may still receive a Form 1099-K who have not received one in the past. Some individuals may receive a Form 1099-K for the sale of personal items or in situations where they received a Form 1099-K in error (i.e. for transactions between friends and family, or expense sharing). IRS is updating guidance to direct taxpayers to report these scenarios on the Form 1040, Schedule 1, for tax year 2022. See the section titled “Information for personal income” for additional information.

What is included on the Form 1099-K?

Whether you own a business, are self-employed, work in the gig economy or are selling personal items, Form 1099-K includes the gross amount of all payment transactions. You may receive a Form 1099-K from each payment settlement entity from which you received payments in settlement of reportable payment transactions. A reportable payment transaction is defined as a payment card transaction or a third-party network transaction. A third party network transactions may include a payment through a payment app.

  • Payment card transaction means any transaction in which a payment card, or any account number or other identifying data associated with a payment card, is accepted as payment.
  • Third party network transaction means any transaction that is settled through a third-party payment network, but only after the total amount of such transactions exceeds the minimum reporting thresholds.

The gross amount of a reportable payment does not include any adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts, or any other amounts. The dollar amount of each transaction is determined on the date of the transaction.

NOTE: The minimum reporting thresholds for tax years after 2021 apply only to payments settled through a third-party payment network; there is no threshold for payment card transactions.

Information for personal income

If you sold goods or provided services and used a third-party settlement organization, you may receive a Form 1099-K. If you received income for services you provided, including payments received through gig economy work, see Information for businesses and those who are self-employed below.

There are no changes to what counts as income or how your tax is calculated, including income from the sale of personal assets. You must report all your income on your tax return unless it’s excluded by law.

What should I do if I received a 1099-K in error or for a personal item I sold?

If you receive a Form 1099-K for the sale of personal items or received a Form 1099-K in error, follow the chart below for reporting instructions.

Scenario Action(s) to take
Personal items sold at a loss

If you receive a Form 1099-K for a personal item sold at a loss, report the information on Form 1040, Schedule 1, Additional Income and Adjustments to Income with offsetting transactions. For example, if you receive a Form 1099-K for selling your couch online for $700 you will report:

  • Part I – Line 8z – Other Income – Form 1099-K Personal Item Sold at a Loss $700
  • Part II – Line 24z – Other Adjustments - Form 1099-K Personal Item Sold at a Loss $700
The net effect of these two adjustments on adjusted gross income would be $0.
Personal item sold at a gain If you sold an item you owned for personal use, such as a car, refrigerator, furniture, stereo, jewelry, or silverware, etc., at a gain, your gain is taxable as a capital gain. Report your gain as explained in the Instructions for Schedule D (Form 1040).For personal items sold at a loss, follow the instructions for Personal items sold at a loss.
Mix of personal items sold – some at a gain and others with a loss

Your gains and losses are to be reported separately and gains for assets cannot be offset by losses from the sale of personal assets.

If you sold an item you owned for personal use at a gain, see Personal items sold at a gain for information on how to report.

For personal items sold at a loss, follow the instructions for Personal items sold at a loss for information on how to report.

Form 1099-K received in error

If you received a Form 1099-K by mistake or if the form you received has incorrect information, contact the issuer of the Form 1099-K immediately. The issuer’s name appears in the upper left corner on the form along with their phone number.

If you can’t get a corrected Form 1099-K, report as follows:

Same as personal assets sold at a loss except changing the description as follows:

  • Part I – Line 8z – Other Income – Form 1099-K Received in Error
  • Part II – Line 24z – Other Adjustments - Form 1099-K Received in Error

Information for businesses and those who are self-employed

What should I do with this information?

If you own a business or are self-employed, including those who work in the gig economy, it is important that your business books and records reflect your business income, including any amounts that may be reported on Form 1099-K. You must report on your income tax return all income you receive. In most cases, your business, including self-employment income will be in the form of cash, checks, and debit/credit card payments. This income is generally referred to as gross receipts on income tax returns. Therefore, you should consider the amounts shown on Form 1099-K, along with all other amounts received, when calculating gross receipts for your income tax return.

Forms 1099-K can report many types of transactions that should be considered when filing. In some instances, taxpayers may receive a Form 1099-K for the sale of personal assets or for transactions that are not required to be reported.  To help with filing requirements, the IRS is providing guidance for these specific scenarios for the 2022 tax year. See section Information for personal income for more information.

How do I check my records with what is reported on the Form 1099-K?

  • Check your payment card receipt records and merchant statements to confirm that the amount on your Form 1099-K is accurate
  • Review your records to ensure your gross receipts are accurate and reported correctly on your income tax return
  • Determine whether you have reported income from all forms of payment received, including cash, checks, and debit, credit, and stored-value card transactions
  • Maintain documentation to support both the income and deductions you report on your income tax return

Do any of these statements apply to the Form(s) 1099-K you received?

  • The Form 1099-K does not belong to you or is a duplicate
  • The payee Taxpayer Identification Number (TIN) is incorrect
  • The gross amount of payment card/third party network transactions is incorrect
  • The number of payment transactions is incorrect
  • The Merchant Category Code (MCC) does not correctly describe your business

If so, consider the following:

  • If the Form 1099-K does not belong to you, contact the Payment Settlement Entity (PSE) listed on the Form 1099-K to try determining why you received the document. The name and telephone number should be shown in the lower-left part on the form. If a PSE name and number are not shown, contact the Filer at the number shown in the upper-left corner on the form. Retain any correspondence with the PSE. 
  • If there is an error on the form, request a corrected Form 1099-K from the PSE. Keep a copy of any corrected Form 1099-K you receive with your records as well as any correspondence with the PSE.

What should I do when the total gross payment amount shown on Form 1099-K does not belong to me?

In some cases, the total gross payment amount on Form 1099-K may not belong to you. The following examples illustrate such situations and provide information that may help you determine how to account for the amount of gross payments shown on the Form 1099-K you received.

 
Scenario Action(s) to take
Report business income on Form 1120, 1120S or 1065 and you receive a Form 1099-K in your name If you report your business income on a Form 1120, 1120S or 1065 and you receive a Form 1099-K in your name as an individual (showing your social security number), contact the PSE listed on the Form 1099-K to request a corrected Form 1099-K showing the business's TIN. In addition, request that the PSE use the business's TIN on all future Forms 1099-K. Report the income from the Form 1099-K along with any other sources of income on the appropriate income tax return. Retain all correspondence with the PSE to show that this error was corrected.
Share your credit card terminal with another person or business: If you shared your credit card terminal with another person or business, your Form 1099-K will include payment card transactions belonging to the person or business that shared your terminal, in addition to your own payments. Where required, you should file and furnish the appropriate information return (e.g., Form 1099-K or Form 1099-MISC) for each person or business with whom you shared a card terminal. The information return should include the total payment card transaction amount in addition to any other income belonging to the other person or business. You should retain records of payments issued to each person or business sharing your terminal, including but not limited to shared terminal written agreements and cancelled checks.
Bought or sold your business during the year If you bought or sold your business during the year, your Form 1099-K may include payments for transactions made before you purchased or after you sold the business. This can occur when the tax identification number and business name associated with a credit card terminal are not updated with the new owner's information. You should request a corrected Form 1099-K from the PSE/Filer listed on the form. Its name and telephone number are on the form. Also keep a copy of corrected Form(s) 1099-K with your records and retain the purchase or sales agreement that substantiates the timing of the ownership change.
Changed your business entity structure during the year If you changed your business structure during the year, such as incorporating or converting from a sole-proprietorship (Schedule C) to a partnership (Form 1065), or vice versa, and continued using the same card terminal, the amount shown on the Form 1099-K will not correspond with your new entity's tax return. Be sure to timely notify your merchant acquirer of any change to the name and tax identification number that links the terminal to your current business structure. Be sure to maintain documentation to support the correct income and deductions for both business entities.
Allow your customers to receive cash back when they use their debit cards for purchases If you allow your customers to receive cash back when they use their debit cards for purchases, the Form 1099-K you receive will include those cash back amounts as part of the gross amount of payment card transactions. Generally, you would not include cash back amounts as part of your business's gross receipts on your income tax return, nor would you claim such amount paid to a customer as a business expense. It is important that you maintain records of customer cash back activity over the course of your tax year. 
Business (or businesses) has multiple sources of income If your business (or businesses) has multiple sources of income, you may report business income on more than one line of a return or on multiple returns or schedules. For example, assume you operate a retail business and have rental income. You accept payment cards for both businesses, but because you have only one credit card terminal to process these transactions, your Form 1099-K will include gross payment card receipts for both businesses. You should use your books and records to ensure that all gross receipts are reported on the appropriate line or schedule. In this case, the gross receipts from the retail business should be reported on Schedule C, and the amounts related to the rental activity included in the rental income reported on the Schedule E.
Form 1099-K is incorrect If you have questions about the amount reported, contact the filer (see the upper left corner of Form 1099-K). If you have questions about the merchant or third-party transaction network, find the contact in the lower left corner of Form 1099-K.