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THE ONLINE SELLERS GUIDE TO:

Form 1099-K

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The 1099 K Form for Online Sellers

Technology has opened new doors, and now you can set up a virtual shop from your couch. Whether you're selling homemade sweaters, having a virtual garage sale or offering virtual gardening courses, you’ll need a way to collect payments from your customers. One way to do this is by using online payment platforms from a third-party, including Venmo or Paypal. If you accept credit card payments, online transactions or payments from a third-party you will receive 1099-K forms from the established credit card companies or third-party payment processing companies. These forms will come in handy when it comes time to file taxes. Key takeaways:

The IRS has delayed lowering the $600 reporting thresholds for 1099-K until 2024.
Third-party sellers will report using the older reporting threshold of $20k and 200 transactions.
Apps like Venmo, PayPal, Stripe are considered third-party payment platforms.

Image of text explaining Form 1099-K, a tax form issued by the IRS for reporting online transactions made through credit/debit cards or third-party payment networks. Relevant for self-employed, freelancers, and taxes.

Table of contents

What is a 1099-K form, and what is it used for?...Read more

Who receives a 1099-K?...Read more

Delay in implementing the $600 threshold for Form 1099-K...Read more

Form 1099-K deductions...Read more

Differences Between Form 1099-K and Form 1099-MISC...Read more

Filing a 1099-K form...Read more

When will you receive a 1099-K?...Read more

What is a 1099-K form, and what is it used for?

Form 1099-K is a tax form issued by the Internal Revenue Service (IRS) to report online transactions made through credit or debit cards or third-party payment network transactions such as Paypal, Venmo, Square, Stripe and Stax. One copy of the 1099-K goes to the IRS, and the other is sent to you by the relevant platform. The 1099-K form helps keep online retailers accountable for reporting tax information.

Image explaining the use of Form 1099-K for online businesses to keep track of digital payments and transactions in their accounting record book. #selfemployed #taxes #freelancer

You’ll only receive this form if you sold more than $20,000 in goods. In 2022 the IRS decided to lower that amount from $20,000 to $600 under the American Care Act, but recently decided to delay the implementation until 2024.

Quick tip

Always accurately report your taxes even when you make less than the $20K threshold to avoid IRS penalties later.

If you sell products online, like on Shopify, you'll likely receive a 1099-K at the end of the year that summarizes your transactions.. The 1099-K form only includes digital business transactions and won’t include personal payments. If you send money to family or have other non-business related expenses, these won’t be recorded on the form, even if the transactions were done via online payment networks. The different types of payments reported on the 1099-K include:

Debit card payments
Credit cards (Mastercard, American Express)
Gift cards (Amazon gift cards)
Third-party payment applications (eBay, PayPal)

The 1099-K form includes your personal information, including your Social Security number or Taxpayer Identification Number, making it crystal clear to the IRS if you’re receiving money through an online payment processor. You’ll need to make sure you report this information on Schedule C.

Who receives a 1099-K?

Every online retailer receives the 1099-K form if they accept online credit card payments to sell products or services. You would receive a 1099-K form if you had gross payments of more than $20,000 and more than 200 transactions. If you ran your own online business selling sporting event tickets and grossed $25,000 with 250 total transactions during the tax year, for example, expect a 1099-K to arrive in your mailbox. Typically, if you receive a 1099-K, you're considered a sole proprietor. A sole proprietor is formed by a single person who owns the business, and is the only business owner. In a sole proprietorship, they haven't formed a business entity, like a C-Corp or S-Corp . When you start working on freelance or side-gig projects or start your own business, you’re automatically considered a sole proprietor. For example, if you run a catering company, tutoring service, house cleaning service or landscaping company, you would have the title of sole proprietor. Selling products or services online can also mean you're a sole proprietor. Receiving payment online for those products or services via third-party payment processors would qualify you to receive a 1099-K. There's a fine line between a hobby and a business. If your hobby looks more and more like a business, you should expect to receive a 1099 form from your sales.

Delay in implementing the $600 threshold for Form 1099-K

Many online sellers were misreporting or under-reporting their income from online sales, and the IRS was missing out on a lot of tax revenue. By lowering the income threshold to $600, many more taxpayers were expected to receive a 1099-K form. The IRS decided to delay implementing the lower $600 threshold to 2024 because it gives companies more time to comply with the new criteria. The 1099-K also falls under the American Rescue Plan Act of 2021, and the IRS expects more taxpayers to accurately report their income, including any online transactions like online sellers’ payments. If you’re looking for a way to avoid receiving a 1099-K, you’re out of luck. With the new changes by the IRS, it will be a lot harder to avoid the income-reporting requirements.

Alt text: Changes in Form 1099-K requirements for digital payments. Minimum threshold reduced to $600. Relevant for taxes, freelancers, and self-employed.

Form 1099-K deductions

You can deduct some expenses based on your credit card payments reported on Form 1099-K, including:

Advertising costs: you can deduct costs related to advertising for your business.
Web hosting: payments for web hosting fees can count as a deduction.
Internet access: if you use the internet for your business, you can write off your internet costs as a deduction.
Credit card or merchant fees: the credit card or merchant fees that you pay can qualify as deductions.
Home office: using part of your home exclusively for your business may qualify you for home-office deductions.

Differences Between Form 1099-K and Form 1099-MISC

Although Form 1099-K and Form 1099-MISC are both 1099 forms, they are very different. If you earn more than $600 during the year in freelance or self-employment income, you may receive a Form 1099-MISC for any miscellaneous compensations.

$10 or more in royalties
Rent
Cash prizes and awards
Payments made to an attorney
Fishing boat proceeds

For example, if you provide lawn care services, your customer will not be sending you Form-1099 MISC. If a company awarded you a cash prize of more than $600, they’ll send you a 1099-MISC. An important distinction between the 1099-K and 1099-MISC is that the 1099-K form reports your online business transactions, and Form 1099-MISC reports income paid for your services regardless of the payment method.

Filing a 1099-K form

Some good news is that as a freelancer, business owner or self-employed person, you don’t have to file a 1099-K form. You’ll receive the form in the mail and report the information on your tax return. Credit or debit card companies and third-party payment processors need to file 1099-K forms by submitting them to the IRS. Once you receive a copy of the IRS 1099-K forms, check to make sure the information reported matches your records. It’s up to you to keep a record of all your online transactions to eventually reconcile them with the 1099-K forms you receive at the end of the year. When reporting the income from online sales on your Schedule C, this information should match with the IRS.

Steps for Form 1099-K - Keep records of online transactions, reconcile with 1099-K, report income on Schedule C and file with 1040 tax return.

Let’s look at the steps for using 1099-K. First, Copy 1 gets submitted to your state tax department by third-party payment vendors.

Image of Form 1099-K with fields for filer's and payee's details, payment card and third-party network transactions, and state and federal taxes.

Copy B is filled out and sent to you by third-party payment vendors, who report every transaction.

Image of Form 1099-K with fields for filer's and payee's information, payment details, and tax withholding. Relevant for self-employed, freelancers, and taxes.

When will you receive a 1099-K?

The deadline for sending a 1099-K is January 31. If you don’t receive one by this date, it may have gotten lost in the mail or your contact information might need updating.

Alt text: Reminder for deadline of Form 1099-K on January 31. Important for self-employed, freelancers and taxes.

1099 G form

The 1099-G form is used to report payments made by governments to individuals. Unemployment compensation should be reported on Schedule 1 (Form 1040).