What Does a 1099-K Mean for Your Taxes?
A Form 1099-K shows gross transactions, which may not be fully taxable. Understand how to reconcile this figure for accurate tax reporting.
Form 1099-K, Payment Card and Third Party Network Transactions, is an informational document that reports the gross amount of payments you received through payment card transactions and third-party payment networks like PayPal or Venmo. The Internal Revenue Service (IRS) and you each receive a copy. The figure reported on the form is not automatically considered taxable income; you must determine how much, if any, of that total amount needs to be reported on your tax return based on the nature of the transactions.
Who Receives a Form 1099-K
Payment Settlement Entities (PSEs) are responsible for sending Form 1099-K. These entities include merchant acquiring entities that process card payments for businesses and third-party settlement organizations (TPSOs) like eBay, Etsy, Venmo, and PayPal. These companies issue the form to individuals and businesses who receive payments for goods or services through their platforms once certain thresholds are met.
The federal reporting requirement has been a subject of recent changes. For tax year 2024, the IRS has initiated a phased-in approach, setting the threshold at an aggregate of $5,000 with no minimum transaction count. A provision in the American Rescue Plan Act of 2021 originally set a much lower $600 threshold, but the IRS has repeatedly delayed its implementation.
The plan is to further lower the threshold for the 2025 tax year. Some states have established their own, lower reporting thresholds, which can result in receiving a 1099-K even if federal minimums are not met.
Understanding the Information on Your Form
When you receive a Form 1099-K, the most significant figure is found in Box 1a, “Gross amount of payment card/third party network transactions.” This number represents the total unadjusted dollar amount of all reportable payment transactions. This gross figure does not account for any deductions, such as platform fees, credits issued to customers, shipping costs, or refunds you may have processed.
Your first step should be to verify its accuracy against your own records. Compare the total in Box 1a with your sales reports from the payment platform or your own bookkeeping. You should also confirm that your personal information, particularly your name and Taxpayer Identification Number (TIN), is correct. An incorrect TIN can lead to compliance notices from the IRS and, in some cases, backup withholding, where the PSE is required to withhold 24% of your future payments.
If you discover an error, you should immediately contact the PSE that issued the form. The contact information for the filer is typically located on the form itself. Request a corrected Form 1099-K. Having a corrected form is the cleanest way to ensure your tax filing matches the information the IRS has on record.
Reporting 1099-K Income on Your Tax Return
The method for reporting the income detailed on a Form 1099-K depends on the type of activity that generated the payments. The gross amount from Box 1a is the starting point, which you will then adjust with your costs and expenses to arrive at the correct taxable figure. It is your responsibility to maintain records that substantiate these adjustments.
For individuals operating a business as a sole proprietor, such as a freelancer or online seller, the gross income from the 1099-K is reported on Schedule C (Form 1040). You would list the gross receipts or sales on Line 1. Then, you can deduct all ordinary and necessary business expenses, such as payment processing fees and advertising, to calculate your net profit or loss.
If the 1099-K reflects the sale of personal items, the tax treatment varies. If you sold a personal item for more than you originally paid for it, the profit is a capital gain. This gain must be reported on Form 8949 and then carried over to Schedule D (Form 1040).
Conversely, if you sold a personal item at a loss, that loss is not deductible. To prevent the IRS from flagging a mismatch, you should report the 1099-K amount on Schedule 1 (Form 1040) as “Other Income” and then subtract the same amount on a separate line, noting it as “1099-K Personal Item Sold at a Loss.”
Payments from a hobby are reported on Schedule 1 under “Other Income,” and you can deduct expenses up to the amount of hobby income you earned. If your 1099-K includes non-taxable reimbursements from friends or family, use the same Schedule 1 adjustment process to zero out the amount.