What to Do With a Form 1099-K for 2023

Form 1099-K is an informational document from third-party settlement organizations (TPOs), like PayPal or Venmo, that reports the gross amount of your payment transactions to you and the IRS. The form summarizes the total value of transactions processed on your behalf, which the IRS uses to verify income reporting. Recent changes and delays in reporting requirements have caused confusion for many taxpayers about the rules for the 2023 tax year.

2023 Reporting Thresholds

For the 2023 tax year, the Internal Revenue Service (IRS) again delayed implementing a new, lower reporting threshold. The federal requirement for a TPO to issue a Form 1099-K remains at the previous level: gross payments exceeding $20,000 that also stem from more than 200 individual transactions. This decision was made to reduce confusion for taxpayers and payment processors. While the IRS plans to lower the threshold to $5,000 for the 2024 tax year, the higher threshold is the rule for 2023 taxes.

Despite the high federal threshold, you might still receive a Form 1099-K for 2023 even if your transactions fall well below these marks. One reason is that several states mandate their own, lower reporting thresholds, some as low as $600 in gross payments with no transaction minimum. Because payment processors must comply with these state-specific laws, they often apply these lower thresholds more broadly for consistency.

Another reason you might receive a form is that a TPO may choose to issue one as a matter of its own policy. Some processors prepared their systems for an anticipated $600 federal rule and decided to proceed with issuing forms at that level for all users. Therefore, receiving a Form 1099-K does not automatically mean you met the federal criteria, but it does mean the information was reported to the IRS and must be addressed on your tax return.

Information Required for Tax Reporting

The Form 1099-K is the starting point for your tax return, as it shows the gross transaction amount reported to the IRS in Box 1a. This figure represents the total payments processed for you without any adjustments for fees, refunds, or the cost of goods sold. You must reconcile this gross amount with your actual taxable income.

To do this, you will need detailed records that substantiate your business activities, including your own sales logs, invoices, or accounting records. You must also assemble records that identify and prove which transactions on the 1099-K were non-taxable. These could be personal reimbursements from friends, cash gifts, or proceeds from selling a personal item at a loss. Bank statements or notes within the payment app can help distinguish these personal payments from business sales.

You must also collect all records of related business expenses to deduct against your business income, as these reduce your taxable profit. Documents to gather include receipts and statements for:

• The cost of goods sold
• Platform and payment processing fees
• Shipping costs
• Packaging supplies
• Any other ordinary and necessary business expenses

How to Report Form 1099-K on Your Tax Return

The method for reporting income from a Form 1099-K depends on the nature of the underlying transactions. If the payments are from a business or self-employment activity, you will use Schedule C (Form 1040), Profit or Loss from Business. The gross amount from Box 1a of the Form 1099-K should be included on Line 1 of Schedule C as part of your total gross receipts. You will then deduct all your related business expenses on the schedule to arrive at your net, taxable profit.

If the income is from a hobby, it is reported on Schedule 1 (Form 1040), Additional Income and Adjustments to Income; however, hobby expenses are not deductible. For transactions involving the sale of personal items, reporting also occurs on Schedule 1. A gain on a personal item is taxable and should be reported on Form 8949 and Schedule D.

A Form 1099-K that includes a mix of business income and non-taxable personal transactions requires careful handling. You must still account for the full gross amount reported to the IRS. The correct procedure is to report the entire amount from Box 1a on Schedule C, Line 1. Then, on a separate line in Part V of Schedule C or as a subtraction in Part I, you would deduct the non-business portion with a description like “Form 1099-K personal reimbursements not subject to tax.” This creates a clear paper trail that reconciles the reported amount with your actual business income.

Addressing Incorrect Form 1099-K Information

Receiving a Form 1099-K with factually incorrect information requires a different course of action than reconciling personal transactions. Errors can include an incorrect gross payment amount, a wrong taxpayer identification number, or payments that belong to someone else entirely. If you identify such an error, your first step is to contact the payment processor who issued the form immediately. The issuer’s name and contact information are located in the top-left corner of the form.

When you contact the issuer, explain the error, provide documentation to support your claim, and request a corrected Form 1099-K. A corrected form will have the “CORRECTED” box checked at the top and will officially replace the erroneous information previously sent to the IRS. It is important to keep detailed records of all your communications with the issuer, including dates, times, and the names of people you spoke with.

If the issuer is unresponsive or refuses to provide a corrected form, you must still file an accurate tax return. You should report the error on Schedule 1 (Form 1040) by including the erroneous 1099-K amount as “Other Income” and then subtracting the same amount as an “Other Adjustment.” Label both entries as “Form 1099-K Received in Error.” This ensures the IRS’s automated systems see that you have accounted for the reported amount while zeroing out its effect on your taxable income.