The information in this article is up to date through tax year 2019 (taxes filed in 2020).
If you are self-employed and you accept payments using PayPal or something similar, you could receive a 1099-K when it is time to file your taxes.
What is Form 1099-K?
The Form 1099-K, Payment Card and Third Party Network Transactions, is a tax form that shows all the payments your business received through a third-party transaction network. Square and Venmo are both examples third-party network. So are Etsy and Amazon. The Form 1099-K reports the total income you took in during the year using that particular app or service.
Why did I get a 1099-K?
You receive a 1099-K when all of the following statements are true:
- You accept payments through a third-party network
- You collected $20,000 or more for the year
- You completed at least 200 transactions during the year
If you meet these requirements, you should receive your form by January 31st. Many of the networks let you download your 1099-K directly from their site.
Note: In Vermont and Massachusetts, you could get a 1099-K even if you took in less than $20,000 through a third-party.
What to do with a 1099-K:
- Check that the total income reported on the 1099-K is correct. Compare the amount with your business records to be sure.
- Enter your 1099-K earnings as business income on your tax return. Depending on your business type, you will use a Schedule C, E, or F.
- If you issued any refunds or returns, enter these amounts as “Returns and Allowances.”
- Keep your 1099-K with all your other business receipts and record.
Where does the 1099-K go on a tax return?
The amount on your 1099-K gets reported on your tax return as “gross receipts,” a.k.a. your business income. When you e-file with TaxSlayer’s Self-Employed Edition, the amount you enter is automatically filled into the correct schedule on your tax return. Depending on the type of business you have, it will go on your Schedule C, E, or F.
Learn more about TaxSlayer’s Self-Employed Edition
Does a 1099-K include all my business income?
Not necessarily. If your business received any cash or checks or other types of payment during the year, those won’t show up on your 1099-K. You’ll need to keep your own payment records and include that income on your Schedule C (or E or F). Also, if you refunded a purchase or there was a chargeback, that transaction won’t show up on your 1099-K. You’ll need to keep a record of those activities on your own and report them separately.
If you run more than one business, but you collect all payments into a single account, your 1099-K will give you a single total for all sources of income, combined. Say, for example, you run a small retail business online and you also have a rental property. Your customers and your tenants all make payments to a single PayPal account. Your 1099-K will show a total income for both businesses combined. It will be up to you to know how much income was earned for which business, because the amounts are reported separately on your tax return.
Do I have to pay taxes on 1099-K income?
Yes, the income reported on your 1099-K is subject to tax. If you are self-employed, that means you will need to pay self-employment tax on your earnings.
Why did I get an IRS B-Notice?
If you receive an IRS B-notice, it means that the legal name and Taxpayer Identification Number (TIN) that you have provided to your third-party network (PayPal, Venmo, Etsy, etc.) don’t match what the IRS has for you in their records. You’ll need to correct the information before the date on the B-notice.