Does Amazon Report Seller Income to the IRS?
Understand the specifics of how Amazon reports seller income to the IRS and what those figures mean for your tax liability and business record-keeping.
As a third-party settlement organization, Amazon is legally required to report seller income to the Internal Revenue Service (IRS). All Amazon selling partners must complete a Tax Information Interview to provide their taxpayer identification information, regardless of sales volume. The information from this interview determines which tax form Amazon generates for you if your sales reach reporting levels.
IRS Reporting Thresholds for Amazon Sellers
For many years, Amazon would issue a Form 1099-K to a seller only if they had more than 200 transactions and exceeded $20,000 in unadjusted gross sales within a calendar year.
The American Rescue Plan Act of 2021 included a provision to lower this threshold to $600. However, the IRS has delayed the implementation of this lower threshold multiple times. As an interim step, the IRS has announced a threshold of $5,000 for the 2024 calendar year.
For 2024, Amazon is required to send a Form 1099-K to sellers who have unadjusted gross sales of $5,000 or more. Some states have their own, often lower, reporting thresholds that may require Amazon to issue a 1099-K for state tax purposes even if the federal threshold is not met. The IRS has indicated plans for further reductions to the federal threshold in future years.
Understanding Your Form 1099-K
When you receive a Form 1099-K, “Payment Card and Third Party Network Transactions,” from Amazon, the figure in Box 1a shows the “Gross amount of payment card/third party network transactions.” This number represents your total unadjusted gross sales and is not your net profit. The gross figure includes the full amount the customer paid for your product, any shipping fees they paid, and any sales tax collected by Amazon.
This calculation can cause confusion because it includes money that never passes through to your bank account. For example, if you sell a product for $100, the customer pays $10 for shipping, and Amazon collects $8 in sales tax, the amount reported in Box 1a for that transaction will be $118. This is the case even though Amazon remits the sales tax directly to the state and deducts its fees before you receive a payout.
IRS regulations require that the reported amount is not adjusted for fees, credits, or refunds. If a customer returns an item and you issue a full refund, the original sale amount remains part of your unadjusted gross sales total for the year. You can access and download your Form 1099-K by January 31st of the following year through the Tax Document Library in your Amazon Seller Central account.
Reporting Requirements for Other Amazon Income
Income from other Amazon programs is reported differently than product sales. If you participate in the Amazon Associates program, the Amazon Influencer Program, or publish books through Kindle Direct Publishing (KDP), your earnings are not reported on a Form 1099-K. This type of income is considered nonemployee compensation.
For these programs, Amazon will issue a Form 1099-NEC, “Nonemployee Compensation,” if your total earnings for the calendar year are $600 or more. This threshold is a long-standing requirement for businesses paying independent contractors. In some less common situations, such as for royalties or prizes, you may receive a Form 1099-MISC, “Miscellaneous Information.”
The 1099-K is for transactions processed by a third-party payment network, which applies to customer sales. The 1099-NEC is for direct payments from Amazon to you for services rendered, such as generating referral sales or for the rights to publish your digital book.
Reconciling Reported Income with Business Expenses
The gross income figure on your Form 1099-K does not represent your taxable income. To determine your actual profit, you must subtract the cost of your allowable business expenses from the gross amount. This requires meticulous record-keeping of all your business-related expenses throughout the year.
These expenses are reported on a Schedule C (Form 1040), “Profit or Loss from Business,” if you operate as a sole proprietor or a single-member LLC. Common deductible expenses for Amazon sellers include:
- Cost of Goods Sold (COGS), which is what you paid for the inventory you sold
- Amazon’s fees, such as referral fees, FBA fulfillment fees, and monthly storage fees
- Costs for shipping supplies
- Marketing and advertising expenses
- Software subscriptions for inventory or accounting
- A portion of your home office expenses if you meet the requirements