I received Form 1099-K. How do I report it on my tax return?
Separate reporting of these transactions is not required. However, you should follow the return instructions on the form you are completing to report your gross receipts or sales. You should report items that qualify as a trade or business expense on the appropriate line item of Schedules C, E and F.
What is a participating payee?
A participating payee is:
- Any person who accepts a payment card as payment, or
- Any person who accepts payment made by a third party settlement organization on behalf of the purchaser or customer.
Why is this reporting necessary?
This reporting is required by law. Third party information reporting has been shown to increase voluntary tax compliance and improve collections and assessments within IRS.
How are reportable transactions to be reported to IRS?
Gross payment card and third party network transaction amounts are reported on the Form 1099-K, Payment Card and Third Party Network Transactions.
What information must be reported on the Form 1099-K?
The gross amount of reportable payment transactions for the calendar year and its corresponding months are required to be reported for each payee. The reporting of both annual and monthly amounts is necessary to resolve differences between information returns and tax returns of fiscal year filers. The name, address and taxpayer identification number of each participating payee must also be included on the form.
When are Forms 1099-K due?
Information reporting for payment card and third party network transactions is due to the IRS on the last day of February of the year following the transactions. If filing electronically, it is due the first day of April of the year following the transactions.
May Forms 1099-K be filed electronically?
Yes. Those required to file may do so through the FIRE (Filing Information Returns Electronically) system. If a payment settlement entity has more than 250 individual information returns to file in any calendar year, they all must be submitted electronically. Existing users may log into FIRE. New users may create an account and test their file before submitting.
For more information, review Publication 1220, Specifications for Filing Forms 1097, 1098, 1099, 3921, 3922, 5498, 8935, and W-2G Electronically. If you are considering filing on paper, review General Instructions for Certain Information Returns.
What are payee statements and when are they due?
Every payment settlement entity required to file a Form 1099-K must also furnish to each participating payee a written statement with the same information reported to the IRS. The statements must be furnished to the payee by January 31 of the year following the transactions.
May payee statements be furnished to participating payees electronically?
Yes. With the participating payee’s prior consent, payee statements may be provided electronically. This consent may be granted electronically. (See Treasury regulations section 1.6050W-2 for instructions for receiving consent from payees.) If a payee statement is furnished electronically, an email address for the reporting entity may be provided in lieu of a phone number.
Is there a de minimis exception for Forms 1099-K by third party settlement organizations?
There is a “de minimis” exception from reporting for a third party settlement organization with respect to third party network transactions. If payments to a participating payee exceed $20,000 and exceed 200 transactions within the calendar year they must file for that participating payee.
Does the de minimis exception described above apply to payment card transactions?
No. The “de minimis” exception does not apply to payment card transactions settled by merchant acquiring entities.
What constitutes the "gross amount" of reportable transactions?
The "gross amount" of reportable transactions means the total unadjusted dollar amount of aggregate payment transactions for each participating payee.
Are foreign payment settlement entities subject to the reporting requirements?
Yes. The statute and regulations establish that a "payment settlement entity" may be a domestic or foreign entity.
Are payment settlement entities required to report the transactions of governmental units, whether state or federal?
Yes. The term "participating payees" includes any governmental unit.
What is payment card and third party network reporting?
Under section 6050W of the Internal Revenue Code, payment settlement entities (merchant acquiring entities and third party settlement organizations) must report payment card and third party network transactions. This reporting requirement began in early 2012 for payment card and third party network transactions that occurred in 2011.
Are purchases made with stored-value cards or gift cards reportable transactions?
- Purchases are not reportable when the card is accepted as payment by the issuer or someone who is related to the issuer of the card (such as a subsidiary company or the company itself). Under these circumstances, the stored-value cards do not fit the definition of a "payment card" and purchases made with such cards are therefore not reportable.
- Purchases are reportable when the stored-value card is accepted by a network of persons unrelated to the issuer and each other.
For the definition of unrelated person see section 267(b) of the Internal Revenue Code, including the application of section 267(b) and (e)(3), or section 707(b)(1).
If transactions are already reportable on other information returns, must they be reported again by payment settlement entities?
No. If a transaction is reportable by a PSE both under section 6041 or section 6041 A(a) and under section 6050W, the transaction must be reported on a Form 1099-K and not a Form 1099-MISC.
If a worker at a trade or business is an independent contractor, and the independent contractor swipes payment cards on behalf of the trade or business in the normal course of business (in other words, the trade or business, not the independent contractor, receives the proceeds), should the trade or business report payments to the worker on Form 1099-K or Form 1099-MISC?
In this situation, the trade or business should continue to report payments made to independent contractors on Form 1099-MISC as they have done in the past. However, the business will receive a Form 1099-K for these payment card transactions from the payment settlement entity.
How can payee TINs be verified?
Verification of payee TINs is done through the Taxpayer Identification Number (TIN) Matching Program.
For further information please visit General Instructions for Certain Information Returns - Introductory Material or call 1-866-255-0654.
Can the entity responsible for filing Form 1099-K contract with a third party to prepare and file these returns?
Yes. However, the entity responsible for filing (i.e., the entity that submits the instructions to transfer funds) is liable for any applicable penalties under sections 6721 and 6722 if the reporting requirements are not met. In addition, the name, address and Taxpayer Identification Number of the entity responsible for filing must be reported on the Form 1099-K in the box for the filer's information.
What is Form 1099-K?
The Form 1099-K, Payment Card and Third Party Network Transactions, is an information return that reports the gross amount of reportable transactions for the calendar year to the IRS.
If you receive a Form 1099-K, you should retain it for your records and may use it to assist you in completing your tax returns.
I filed Form 1099-K last year. What changes will I see on my 2013 Form 1099-K?
IRS modified calendar year 2013 Form 1099-K to improve compliance effectiveness. These changes include:
- Box 3 (Number of payment transactions) is no longer optional for calendar year 2013 and should reflect the number of purchase transactions (not including refund transactions) processed through the payment card or the third party network.
- Box 4 (Federal income tax withheld) was added to reflect amounts that may have been withheld by the payer, such as backup withholding. The recipient of the Form 1099-K should include this amount on their income tax return as tax withheld.
- Boxes 6, 7 & 8 were added to be consistent with other information returns and reflect the State, State ID Number and State Income Tax Withheld, respectively.
What are payment settlement entities?
A payment settlement entity is an entity that makes payment in settlement of a payment card transaction or third party network transaction. Payment Settlement Entities are often referred to as “PSEs” and can take one of two forms:
- Merchant Acquiring Entity: A bank or other organization that has the contractual obligation to make payment to participating payees in settlement of payment card transactions
- Third Party Settlement Organization: The central organization that has the contractual obligation to make payment to participating payees of third party network transactions
If I use a payment card (or a third party settlement organization) to pay for a purchase, do these payment card reporting rules affect me and will I receive a Form 1099-K?
No. Individuals will not receive a Form 1099-K for making a purchase. These provisions affect only businesses or entities that accept payment cards or use third party network settlement organizations for payment of goods or services.
Do payment settlement entities adjust the "gross amount" to account for fees, refunds, charge-backs or other costs and refunded amounts?
No. The "gross amount" is the total unadjusted dollar amount of the payment transactions for a participating payee. This amount is not to be adjusted to account for any fees, refunds, or any other amounts.
What do I do with the information on Form 1099-K?
The Form 1099-K is an information return. Use this information return in conjunction with your other tax records to determine your correct tax. To get further information on record keeping, check out Publication 552, for individuals or Publication 583, Starting a Business and Keeping Record.
How will IRS use the data?
The IRS will use the data from the Form 1099-K to develop:
- Taxpayer education and outreach products and services.
- New examination and collection approaches.
What do I do if I think my Form 1099-K is incorrect?
If you believe the information on a Form 1099-K is incorrect, the form has been issued in error, or you have a question relating to the form, contact the filer, whose name appears in the upper left corner on the front of the form.
Or you may contact the payer, or PSE, whose name and phone number are shown in the lower left corner of the form. If you cannot get this form corrected, you may attach an explanation to your tax return and report your income correctly.
To get the further information on Information Returns, check out the General Instructions for Certain Information Returns.
Where can I call if I have a question on the Form 1099-K?
Payors who have questions about the Form 1099-K itself, may call the IRS at 1-866-455-7438. Payees who have questions about the information on a Form 1099-K they have received should contact the filer, whose name appears in the upper left corner on the form.
I own a small business and also have a not-for-profit hobby. I do not accept payment cards for payment for either, but I do use a credit card and third party settlement organization to make purchases for both. Do the payment card reporting rules affect me?
No. The provisions for payment settlement entity reporting affect only those businesses or entities that accept these forms of payment for goods or services.
Since you do not accept these forms of payments, you will not receive a Form 1099-K for your sales.
Additionally, you will not receive a Form 1099-K for your purchases. Individuals and businesses only receive Form 1099-K for receiving payment for goods and services in reportable transactions.
I occasionally sell items on an Internet auction site and accept payment cards. How do the payment settlement entity reporting rules affect me?
If you accept payment cards as a form of payment, you will receive a Form 1099-K for the gross amount of proceeds for the goods or services purchased from you through the use of a payment card in a calendar year. Further, if you accept payments from a third party settlement organization, you should receive a Form 1099-K from that organization only if:
- The total number of your transactions exceeds 200
- The aggregate value exceeds $20,000 in a calendar year.
If I have a holiday craft business and accept payment cards for payments, how do the payment settlement entity reporting rules affect me?
If you are set up to accept payment cards as a form of payment, you will receive a Form 1099-K for the gross amount of the proceeds for the goods or services purchased from you through the use of a payment card in a calendar year. Further, if you accept payments from a third party settlement organization, you should receive a Form 1099-K only if:
- the total number of your transactions exceeds 200
- the aggregate value exceeds $20,000 in a calendar year.