Simply put, a 1099-K form is a record that a third-party payment network transferred at least $600 to you during the year.
Did you get paid more than $600 in 2022 for goods or services through a third-party payment network like Venmo, PayPal, Amazon, or Square? Then, due to a changed tax reporting rule, you will most likely receive an IRS Form 1099-K from your payment network—even if you haven’t received a 1099-K in the past. That’s because the 1099-K tax reporting rule now requires third-party payment networks to send a 1099-K if those payments exceed the $600 reporting threshold. (A higher, $20,000, threshold previously triggered the Form 1099-K.)
This “$600 rule” means that more people than in the past who have side hustles, and gigs, or part-time jobs, and businesses, and are paid through networks and apps like Venmo, Amazon, Square, and PayPal, will receive a 1099-K Form in January. But it’s important to note that the new reporting threshold doesn’t change the fact that the IRS has always required taxpayers to report all taxable income, whether they receive a 1099-K form or not.
However, since this is a key tax reporting change, it’s good to have information about what IRS Form 1099-K is, and what the new threshold could mean for you.
What is an IRS Form 1099-K?
A 1099-K is a transaction record from third-party payment networks such as PayPal or Venmo. They fill out the 1099-K and send copies to the IRS, state, and person receiving the payments. The objective is to ensure people report their business income on their tax returns.
An online network is required to file and send a 1099-K if it transfers at least $600 to you during the year. The $600 threshold is an aggregate, meaning that even if different people send you small amounts of money through, say, PayPal, throughout the year, you’ll get a 1099-K from PayPal if those payments add up to at least $600.
A 1099-K is not the same as a W-2, which reports income paid to employees.
What is a 1099-K used for?
A 1099-K is an information return, meaning you can use it to calculate other things on your tax return. Specifically, a 1099-K can help you calculate how much business income you received.
Who qualifies for a 1099-K?
Anybody who accepts payments from credit cards or third-party payment networks such as PayPal or Venmo might receive a 1099-K.
A Form 1099-K has your Social Security number or taxpayer identification number on it, so the IRS will know you’ve received the money.
Do I have to report 1099-K income on my taxes?
There are three things to remember:
- You're required to report business income on your taxes. If you’re a sole proprietor, for example, you’ll likely need to file a Schedule C with your tax return to calculate and report your business income. Your 1099-Ks can help you understand how much you received from clients through Venmo, PayPal, or similar payment methods.
- Be sure you don’t double-report your income. Let’s say you did $750 worth of freelance work for a client during the year. You’ll likely need to report that income as business income on your tax return, but you’ll have two documents reflecting the income. At the end of the year, the client is probably going to send you a 1099-NEC showing that it paid you $750. But if the client sent you that money using PayPal, Venmo or a similar platform, you might also get a 1099-K for the same $750 from the payment network. For this reason, you’ll need to keep good accounting records to make sure you don’t over- or underreport your business income.
- Receiving a 1099-K doesn’t necessarily mean you owe taxes on that money. First, not all of the transactions on your 1099-K may be business-related. (The amount could include your roommate reimbursing you for groceries, for example.) Second, you might have tax deductions that could offset some of your business income.
It Pays to Stay Informed.
Since more and more people will be sent a 1099-K form, it's a good idea to know what it is and what you need to do if you receive one. And remember, if you find yourself with a tax problem of any kind, don't hesitate to reach out to us – we know all the ins and outs.
You can contact me by one of the methods below in the blue box, or email me at Larry@TaxProblemSolver.com and we can review your specific issues and solve them. You can also click here to book a free consultation.
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