Do I Have to Report 1099-K Income?

Receiving a Form 1099-K doesn’t automatically mean you owe taxes on the full amount shown. This form is an informational document sent to you and the IRS by payment processors, and it reports the gross amount of payments you received through their platform.

Understanding Your Form 1099-K

Form 1099-K, Payment Card and Third Party Network Transactions, is issued by Payment Settlement Entities (PSEs) like credit card processors (Square) and third-party settlement organizations (TPSOs) such as PayPal or Venmo. PSEs must send this form to you and the IRS, typically by January 31st of the year following the transactions.

The amount in Box 1a shows the gross amount of all payments you received. This figure serves as a starting point for the IRS to match against your reported income and often includes more than just your profit, as it can encompass customer refunds, shipping fees, and processing charges.

For the 2025 tax year, the federal threshold for a TPSO to issue a 1099-K is $2,500 in gross payments. This follows a temporary $5,000 threshold for 2024, with plans to reduce it to $600 for 2026. Payment card processors that handle direct credit or debit card payments do not have a minimum threshold and must report any amount.

Determining if Your 1099-K Income is Taxable

The total amount on your Form 1099-K is not necessarily all taxable. You must determine which of the reported transactions constitute taxable income by categorizing the payments you received.

• Business Income: If you operate a business, payments for goods or services are fully taxable income. You will report this income and are entitled to deduct related business expenses.
• Hobby Income: Income from an activity not pursued for profit is taxable and must be reported. However, the rules for deducting expenses are much more restrictive than for a business.
• Sale of Personal Items: When selling personal belongings, the taxability depends on whether you have a gain or a loss. If you sell an item for more than you paid for it (your cost basis), you have a taxable capital gain. If you sell it for less, the proceeds are not taxable income, and the loss is not deductible.
• Non-Taxable Transactions: A portion of transactions may be non-taxable personal payments. These include reimbursements from friends for a shared meal, gifts from family, or splitting travel costs, and should not be reported as income.

Reconciling Your 1099-K with Your Records

After receiving a Form 1099-K, you must reconcile the gross amount in Box 1a with your own financial records. Use documents like bank statements, digital wallet histories, sales receipts, and any bookkeeping records you maintain to categorize the transactions. This process determines your actual taxable income.

If you believe the form is incorrect for other reasons, such as including another person’s transactions or being a duplicate, contact the Payment Settlement Entity that issued it. The PSE’s contact information is on the form, and you can request a corrected Form 1099-K.

How to Report 1099-K Income on Your Tax Return

After reconciling your Form 1099-K, you must report the taxable income on the appropriate tax forms. The forms you use depend on the nature of the income.

For income from a trade or business, use Schedule C, Profit or Loss from Business. You report your gross receipts and subtract business expenses like supplies, advertising, and home office expenses to determine your net profit or loss. This net amount is subject to income and self-employment taxes.

Hobby income is reported on Schedule 1 (Form 1040), Additional Income and Adjustments to Income, on the “Other income” line. Unlike business income, you generally cannot deduct expenses related to your hobby.

A gain from selling a personal item is a capital gain reported on Form 8949, Sales and Other Dispositions of Capital Assets. These details are then summarized on Schedule D, Capital Gains and Losses. You will need your original cost and sale price to calculate the gain.

To prevent a mismatch with the IRS, you should account for the full amount from Box 1a on your return. Business filers can include the full 1099-K amount in gross receipts on Schedule C and then subtract the non-taxable portions as a separate line item. Others can report the full amount on Schedule 1 and then include a corresponding negative adjustment on the same schedule to remove non-taxable amounts, using a clear description.