Form 1099-K, Payment Card and Third Party Network Transactions, is an IRS information return that reports the gross amount of payments you received during the calendar year from payment card transactions and third-party payment networks. Essentially, if you’re paid for goods or services through credit, debit, or stored value cards, or via payment apps and online marketplaces, you might receive a Form 1099-K. These organizations, known as payment settlement entities, are legally required to send this form both to you and the IRS.
It’s crucial to understand that Form 1099-K is not for reporting personal payments from family and friends. It’s specifically designed to track income from business or business-like activities. Think of it as an informational tool that, when used alongside your other financial records, helps you accurately calculate and report your taxable income when you file your annual tax return. If you’ve received a 1099-K and are unsure what to do next, the IRS provides helpful guidance at IRS.gov/1099khelp.
Who is Required to Send Form 1099-K?
Several types of entities are mandated to issue Form 1099-K. These primarily include payment card companies, payment applications (payment apps), and online marketplaces. These are collectively known as third-party settlement organizations (TPSOs). By law, these organizations must complete and submit Form 1099-K to the IRS annually. Furthermore, they are obligated to provide a copy of the form to you, the recipient, typically by January 31st of the year following the transactions.
Who Should Expect to Receive a Form 1099-K?
You should anticipate receiving a Form 1099-K in a couple of key scenarios, primarily when you are accepting payments for goods or services.
Direct Payments via Credit or Bank Card
If your business model involves direct payments from customers or clients using credit, debit, or gift cards, you are likely to receive a Form 1099-K. The source of this form will be your payment processor or payment settlement entity. Importantly, there’s no minimum threshold for the number or amount of payments in this case. Even if you only received a single payment via card, a 1099-K could be issued.
Payments Through Payment Apps or Online Marketplaces
The use of payment apps and online marketplaces has become increasingly common. If you utilize these platforms to sell goods, provide services, or rent property, and the total payments you receive exceed a certain threshold, you will generally receive a Form 1099-K. While the reporting threshold has fluctuated, it’s important to be aware of the current guidelines. This applies to various online platforms, including:
- Payment apps like PayPal, Venmo, Cash App
- Online community marketplaces such as Etsy or Facebook Marketplace
- Craft or maker marketplaces
- Auction sites like eBay
- Ride-sharing and car-sharing platforms like Uber or Lyft
- Ticket exchange or resale sites
- Crowdfunding platforms
- Freelance marketplaces like Upwork or Fiverr
It’s entirely possible to receive multiple 1099-K forms if you operate across different platforms. Remember, even if you don’t receive a Form 1099-K, you are still responsible for reporting all income on your tax return. Crucially, payments from family and friends that are genuinely personal in nature are not to be included on Form 1099-K, as these are not considered payments for goods or services.
Understanding the 1099-K Reporting Threshold
The reporting threshold for Form 1099-K has been a subject of recent adjustments. According to IRS Notice 2024-85, for transactions in 2024, third-party settlement organizations are required to report if the gross amount of payments exceeds $5,000. This threshold is set to decrease to over $2,500 for 2025, and further down to over $600 for 2026 and subsequent years. These changes stem from the American Rescue Plan Act of 2021, which initially set the threshold at $600.
It’s important to note that while the IRS is phasing in the implementation of the $600 threshold, some companies might still issue Form 1099-K for amounts exceeding $600 even before 2026. Regardless of whether you receive a Form 1099-K, the fundamental tax principle remains: if you receive income from selling goods, providing services, or renting property, you are legally obligated to report this income on your tax return. The IRS provides resources and reminders about income reporting in their Tax Time Guide.
Differentiating Personal Payments from Business Transactions
It’s vital to distinguish between personal payments and payments for goods or services when considering Form 1099-K. Money received as a gift from family or friends, or as reimbursement for a personal expense, should not be reported on Form 1099-K. These types of payments are not considered taxable income. Examples include splitting the cost of a ride or a meal, receiving birthday or holiday gifts, or being repaid by a roommate for rent or utilities.
When using payment apps, it’s advisable to categorize these types of transactions as non-business whenever possible within the app’s interface. If you mistakenly receive a Form 1099-K for payments that should not be included, the IRS provides guidance on what steps to take.
